India loosens infrastructure lending regime

India’s central bank has loosened lending policies, allowing refinancing of long-term loans on infrastructure projects exceeding a certain amount.

The Reserve Bank of India (RBI) issued a directive yesterday allowing domestic commercial banks flexibility in structuring and refinancing existing and future project loans to infrastructure and core industry projects with an aggregate risk exposure of five billion rupiah (€63 million; $78 million), under the influence of heavy industry lobbying.

The measure comes as a relief for the cash-strapped sector, after the Reserve Bank adopted a strict policy with public banks last August, barring them from selling infrastructure bonds, which they would have purchased from issuing clients on the secondary market, thus arguably jeopardising access to liquidity should institutional investors not be able to absorb needed levels of debt.

“Banks have represented that such flexible structuring of project loans with the option of periodic refinancing may also be allowed to existing loans to infrastructure projects and core industries projects, as it would ensure long term viability of existing infrastructure/core industries sector projects by aligning the debt repayment obligations with cash flows generated during their economic life,” noted the RBI statement.

Projects are eligible where the aggregate exposure of all institutional lenders exceeds Rs.500 crore in the infrastructure sector –defined by the “harmonised master list of infrastructure of RBI”- and in the core industries sector (included in the Index of Eight Core Industries 2004-05) published by the Ministry of Commerce and Industry.

The sectors listed are transport, energy, water and sanitation, social and commercial infrastructure. Under transport, all air, land and sea transport projects falling under the indicated exposure threshold are covered, with the sole exception of rolling stock transport via urban road transport.

In the energy sector, within the same exposure thresholds, all generation, transmission and distribution projects are included. Also included are logistical facilities for the stocking of oil, gas, and liquefied natural gas as well as conveyance of these resources.

Communication fixed networks such as optic fibre/cable networks which provide broadband/internet, towers and relevant services are all eligible for the new flexibility entitlement.

Commercial infrastructure has received a very extensive definition, with the sphere of relevance stretching into real estate – for example, three-star hotels outside cities of over a million inhabitants – as well as into agribusiness, with the inclusion of capital investment in fertilisers, post-harvest storage infrastructure for agriculture and horticultural produce including cold storage, soil testing centres and cold chains.

Regarding existing project loans, the refinancing may only be carried out once through a fresh loan amortisation schedule, with value capped at 85 percent of the original loan’s value, and only once the commercial operation of the infrastructure project has commenced.