The apex bank has put forth two conditions for banks on issuance ofguarantees favouring other lending agencies. A bank would be permitted toissue the guarantee provided it also takes a funding share in the projectand that the amount of such guarantees will not exceed twice the fundingshare assumed by it, an RBI directive issued on April 23 said. The RBI hasalso emphasised that the guarantor bank must have a satisfactory record incompliance with the prudential regulations such as capital adequacy, creditexposure norms and other norms relating to income recognition, assetclassification and provisioning.

The apex bank also said that financing infrastructure through specialpurpose vehicles (SPVs) call for a special appraisal skills on the part oflending agencies. "Often the size of the funding requirement wouldnecessitate joint financing by banks/FI or financing by more than one bankunder consortium or syndication arrangements. In such cases participatingbanks/FIs may for the purpose of their own assessment refer to the appraisalreport prepared by the lead bank/FI or have the project appraised jointly,"the RBI circular said.

Infrastructure finance will continue to be governed by the institutionsregarding exposure limits currently in place where exposure of a bank/FI isrestricted up to 25 per cent of its capital funds and that to a group ofborrowers to 50 per cent.

Taken into account the large-scale financial requirements of infrastructureprojects, banks/FIs have also been allowed to exceed the group exposurelimit by 10 per cent to 60 per cent. Outlining modalities for financinginfrastructure projects, the RBI said that infrastructure in a broad sensewould include sectors such as power, telecommunications, road, airports,water supply, waterways and urban transport systems.

The criteria for financing such projects has also been laid out wherein theamount sanctioned should be within the overall ceiling of the prudentialexposure norms prescribed by the RBI. Banks/FIs should also satisfythemselves that the projects financed by them have income generationcapacity sufficient to repay the loan together with interest. They have alsobeen instructed to evolve an appropriate debt-equity ratio for each project,if necessary, in consultation with FIs.

The RBI has made relaxations for term loans given to projects undertaken bypublic sector undertakings. "In respect of projects undertaken by PSUs, termloans may be sanctioned only for corporate entities registered under theCompanies Act. Further, such term loans should not be in lieu of or tosubstitute budgetary resources if such supplementing was contemplated in theproject design. This is in relaxations of the earlier instruction on thesubject issued in 1994," the RBI directive said.