Japanese lending agencies are likely to be given a special dispensation in India to give a boost to foreign funds available for infrastructure financing. The Reserve Bank of India is set to allow Japan Bank for International Cooperation (JBIC) to provide its $3 billion loan to the Delhi-Mumbai Industrial Corridor (DMIC) in rupee terms, with the lender bearing the exchange rate risk. Additionally, the central bank will also allow JBIC to do the currency and interest rate swap, akin to similar facility available for International Finance Corporation and Asian Development Bank.

This would mean the Japanese firms in India will be able to get rupee loans at lower interest rates, not being deterred by country?s BBB- credit rating. The JBIC will be able to lend on the strength of its own better credit rating of AA+. The RBI, however, is yet to take a call on providing the facility to other Japanese lenders, whcih are co-financiers of JBIC, sources said.

Currently, yen loans by Japanese agencies are converted into rupees by an intermediary Indian bank which charges a premium for bearing the exchange risk.

This will be a huge incentive for entities like JBIC which are set to play a major role in the mammoth industrial city project and Japanese firms investing in the project. Sources said the RBI may permit a big Indian bank ? most likely the State Bank of India or an offshore entity or a consortium of the two ? to act as counter-party for JBIC for the currency swap.

?With the swap facility, we (DMIC projects) will still get rupee loans at reasonable rates,? an official said. In fact, JBIC wanted RBI to be the counterparty, but the latter being a regulator has suggested the country?s largest lender State Bank of India?s name. The counter party, according to officials, should have depth in rupee terms besides the ability to offer loans for longer tenures ? which are a must for infrastructure projects like DMIC.

The department of industrial policy and promotion which oversees the DMIC project has also asked the RBI to allow more Japanese Bank branches in India (higher than the annual limit for foreign banks), source said.

According to senior government officials, the central bank has, in principle, agreed to a swap facility for JBIC on the lines of those allowed for International Finance Corporation and the Asian Development Bank.

While JBIC will lend $3 billion as commercial loan, another $1.5 billion would be lent by the Japan International Cooperation Agency (JICA) as government soft loan.

In fact, the finance ministry has agreed to give a 26% stake to JBIC in the DMIC development corporation (DMICDC), a special purpose vehicle to vet the project proposals.