Reserve Bank of India (RBI) has relaxed the overseas borrowings or external commercial borrowings (ECB) norms for Indian firms and allowed infrastructure firms to borrow upto five years. The RBI said that it has reviewed the existing ECB guidelines in consultation with the government after “taking into account prevailing external funding sources, particularly for long-term lending and the critical needs of infrastructure sector of the country”. As per the new framework, infrastructure firms, non-banking finance companies -Infrastructure Finance Companies (NBFC-IFCs), NBFCs-Asset Finance Companies (NBFC-AFCs), holding companies and core investment companies (CICs) will also be eligible to raise ECB for minimum average maturity period of five years, subject to 100 per cent hedging, the Reserve Bank said in a release.
‘Exploration, Mining and Refinery’ sectors which are not included in the list of infrastructure sector but were eligible to take ECB will be deemed as in the infrastructure sector, and can access ECB as applicable to infrastructure sector, RBI said. “Companies in infrastructure sector shall utilise the ECB proceeds raised under Track I for the end uses permitted for this Track. NBFCs-IFCs and NBFCs-AFCs will, however, be allowed to raise ECB only for financing infrastructure,” it added.
According to the new norms, holding Companies and CICs shall use ECB proceeds only for on-lending to infrastructure Special Purpose Vehicles (SPVs). Track I refers to Medium term foreign currency denominated ECB with Minimum Average Maturity of 3/5 years. The individual limit of borrowing under the automatic route for these companies is $750 million. Only those NBFCs which are coming under the regulatory purview of the Reserve Bank are permitted to raise ECB.
The move would help increase availability of funding for infrastructure projects, said SREI Infra Vice Chairman and ASSOCHAM President Sunil Kanoria. RBIs policy action will make it easier for infrastructure companies to raise funds as well as refinance costlier debt, as loans with shorter maturity are cheaper than long-term borrowings, bankers said. Welcoming the experts say that this is a remarkable step as it opens up a diverse set of investors for such companies and they can borrow now at a competitive rate than the domestic rates. However, the requirement of 100% hedging may prevent many borrowers to raise funds. As a matter of fact, the new rule demanding hedging is relevant as most of the infrastructure companies do not hedge against currency risk. 100% hedging will escalate costs steeply as hedging costs are high in international market.
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