India permits take-out financing for infra projects

Reserve Bank of India (RBI), the country’s central bank, has decided to permit take-out financing via external commercial borrowings (ECB), thus relaxing norms for infrastructure companies. Companies involved in the seaport, airport, road and power sectors will be eligible to take advantage.

The Reserve Bank of India (RBI) has announced that it will allow take-out financing through external commercial borrowings (ECB) for infrastructure companies in India, according to a notification on the RBI website.

“As per the extant norms, refinancing of domestic rupee loans with ECB is not permitted. However, keeping in view the special funding needs of the infrastructure sector, it has been decided to review the ECB policy and put in place a scheme of take-out finance,” the RBI stated in a notification on its website.

The notification states that companies can access take-out financing through overseas borrowing only after the project has been commissioned. It lists eligible borrowers as those setting up sea ports, airports, roads (including bridges), and power plants.

In order to take advantage, the company developing the infrastructure project must also have a tri-partite agreement with domestic banks and overseas lenders for take-out of the loan.  The loans must have a minimum tenure of seven years, as per the RBI notification.

It also states that take-out finance cannot be guaranteed by domestic banks and financial institutions.  All other existing aspects of ECB policy such as a $500 million limit per company per financial year under the automatic route remain unchanged.

Infrastructure projects in India largely depend on financing from commercial banks that is available for a short-term period only. This results in asset liability mismatches and delays the project. In order to create long-term funding options and attract private capital to the infrastructure sector, the government is in the process of relaxing regulations and tax norms.