To further boost financing for the infrastructure sector, the RBI on Thursday, allowed companies to access takeout financing through overseas borrowing but only after the commissioning of the project. Companies can now raise external commercial borrowing (ECBs), via the approval route to refinance rupee loans they have taken from domestic banks.
The current cap of $500 million, in a financial year, applicable under the automatic route, will apply for ECBs that are being raised as take-out finance, under the approval route, as will other rules relating to the end-use of the money. Eligible borrowers include those putting up sea ports, airport, roads including bridges and power plans. Hitherto, rupee loans cannot be repaid by borrowing overseas. ?Allowing refinance of a loan through ECBs is an important relaxation in project financing, by the RBI,? said Pradip Kumar the CEO of IIFCL. ?But the market appetite for such refinancing (post completion plus three years) is limited as of now,? he added. The government entity has recently been allowed to offer take out financing for Indian banks, which is a novelty for the domestic financial sector. Take out financing gives banks the option to offload long term loans from their books. This reduces the mismatch between their typically short term deposits and long term loans for infrastructure projects and so improves their balance sheet. The IIFCL window is a rupee one while the new one opened on Thursday by RBI will be in foreign currency.
The RBI has noted that the company putting up the infrastructure project should enter into a tripartite agreement with domestic banks and overseas recognised lenders, for either a conditional or unconditional take-out of the loan, within three years of the project becoming operational. The scheduled date of the take-out needs to be mentioned in the agreement. The loan should have a minimum average maturity of seven years and the domestic bank financing the infrastructure project should comply with the prevailing prudential norms relating to take-out financing. The fee payable, if any, to the overseas lender until the take-out comes into being, shall not exceed 100 bps per annum, RBI notification states. On take-out, the residual loan, agreed to be taken-out by the overseas lender, would be considered as an ECB. Moreover, the loan should be designated in a convertible foreign currency and all prevailing norms relating to ECB should be complied with.