The country is banking on private capital to set right its rickety infrastructure, which according to finance Minister Yashwant Sinha needs annual investments of nearly $25 billion.

But the jump in interest costs on corporate debt issues, which will be the likely result of the tighter rules, will retard financing commitments for these projects.

The central bank, in its mid-year policy review at the end of last month, said investments by banks in corporate debt guaranteed by term-lending financial institutions (FIs) would be treated as banks' exposure to the FI and not to the corporate as is currently done.

Bankers say that viewed together with guarantees, the exposures of some banks towards FIs may already be banging against their limits.

The RBI's prudential norms cap banks' exposures to a single firm at 25 per centof their net worth, while it is 50 per cent for a group of associated firms.

Bankers said since all term lenders depend upon banks for a good part of their annual domestic resource mobilisation, they will be forced to go slow while issuing guarantees, as banks' exposure limits for them could be eaten up by their investments in the guaranteed debt, bankers said.

"From now on, issuing a guarantee will eat into FIs resource raising capacity," said Sanjay Bhasin, chief dealer, money markets, at Standard Chartered Bank.

Without these guarantees, corporates seeking funds for projects would have to pay higher rates, they said.

"The cost of infrastructure funding will go up. Banks were comfortable with FI guarantees while investing in long-term corporate debt. Without these guarantees, companies will have to pay a higher price," a senior official at the SBI, told Reuters.

Promoters of private sector greenfield projects have been resorting to guarantees from the three leading financial institutions -- IDBI,ICICI and IFCI -- to lower their debt issue costs.

Reliance Telecom Ltd, a greenfield telecom venture promoted by petrochemicals major Reliance Industries Ltd recently issued two tax-free infrastructure bonds guaranteed by ICICI.

The company offered 10.75 per cent on bonds with repayment after eight, nine and 10 years and 11 per cent on bonds with a one-shot repayment after 10 years.

Analysts say without these guarantees, costs could shoot up.

"The guarantees allow a lesser rated company to raise funds at a AAA (SO) rating. On their own, they would have managed a much lesser rating," adds MR Madhavan, fixed income analyst with ICICI Securities and Finance Co.