Mumbai: The Reserve Bank of India (RBI) on Tuesday said infrastructure finance companies (IFCs) can raise funds through external commercial borrowings (ECBs) of up to 50% of net-owned funds without approval.
“As a measure of liberalization of the existing procedures, it has been decided to permit IFCs to avail of ECBs, including the outstanding ECBs, up to 50% of their owned funds under the automatic route, subject to their compliance with the prudential guidelines already in place,’’ RBI said.
Easier access: The Reserve Bank of India has said infrastructure finance companies can raise funds through external commercial borrowings of up to 50% of net-owned funds without approval. Bloomberg
ECBs by IFCs above 50% of their owned funds would require RBI clearance and will, therefore, be considered under the approval route, it added.
“This broadly is a positive move because it shows the regulators have the right ideas,” said Aditi Thapliyal, banking lead analyst with Execution Noble and Co. Ltd, a UK-based investment bank.
In its April monetary policy, RBI had relaxed some norms for infrastructure lending to meet financing needs.
RBI had noted that rights, licences and authorizations of borrowers, charged to banks as collateral in project loans, including infrastructure loans, were eligible to be recognized as tangible security. However, since toll collection rights and annuities offer some material benefits to lenders, the central bank had proposed that such annuities under the build-operate-transfer model be treated as tangible securities subject to the banks’ right to receive them.
For safeguards such as escrow accounts with regard to infrastructure lending, RBI had also proposed that infrastructure loan accounts classified as substandard would attract provisioning of 15% instead of 20%.
However, this would be subject to banks having an an appropriate mechanism to escrow the cash flows as well as a clear and legal first claim on such cash flows, it had said then.
Lowering the provision requirement would encourage banks to take higher exposure to the infrastructure sector as they would need to set aside less money when an account goes bad.