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RBI permits take-out financing via ECBs for infra projects
23 July 2010: The Reserve Bank of India (RBI) has decided to allow take-out financing arrangement through external commercial borrowings (ECBs) under the approval route for infrastructure projects.
The new measure, taken in view of the special funding needs of the infrastructure sector, will help refinance rupee loans obtained from domestic banks for development of new projects in sea ports, airports, roads — including bridges — and power sectors.
According to an RBI notification, the corporate taking up the project should have a tripartite agreement with domestic banks and overseas recognised lenders for either a conditional or unconditional take-out of the loan within three years of the scheduled commercial operation date.
The loan should have a minimum average maturity period of seven years and the domestic bank financing the project should comply with the extant prudential norms relating to take-out financing, the notification states.
It has also been stipulated that the fee payable, if any, to the overseas lender until the take-out should not exceed 100 basis points per annum. The residual loan agreed to be taken out by the overseas lender will be considered as ECB and the loan has to be designated in a convertible foreign currency.
Domestic banks or financial institutions will not be permitted to guarantee the take-out finance. Also, the domestic bank will not be allowed to carry any obligation on its balance sheet after the take-out arrangement.
The notification says that all other aspects of ECB policy — such $500 million limit per company per financial year under the automatic route, end use, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements — remain unchanged.
Source: Hindu Business Line