The Hindu Business Line : Infrastructure financing: NBFCs for enlarging global lenders’ pool

Elimination of the restrictive condition, whereby overseas lenders are required to have a direct exposure to infrastructure projects amounting to three times of what is being lent to NBFCs, has been sought.

K. Ram Kumar

Mumbai, April 7 Non-banking finance companies, dedicated to financing infrastructure projects, have moved the Reserve Bank of India to enlarge the pool of global lenders from whom they can borrow. They have also sought elimination of the restrictive condition whereby overseas lenders are required to have a direct exposure to infrastructure projects amounting to three times of what is being lent to NBFCs.

NBFCs in the infrastructure financing space want the pool of overseas lenders, from whom they can borrow, expanded to include reputed banks and bilateral financial institutions so that they can source loans on favourable terms and conditions.

The big NBFC players in the infrastructure space include Infrastructure Development Finance Company, SREI Infrastructure Finance, Power Finance Corporation and Rural Electrification Corporation, among others.

ECB restrictions

As per RBI’s external commercial borrowings (ECBs) policy, sourcing of funds has been restricted to multilateral/ regional financial institutions and government-owned financial institutions.

Under the ECB policy, NBFCs can avail themselves of ECB up to $500 million per financial year under the ‘approval route’ to finance import of equipments for leasing to infrastructure projects in India. The average maturity of the borrowing should be five years. The requirement of all-in-cost ceilings on ECB has been dispensed with until June 30, 2009.

Analysts say that the ECB policy encourages import of capital equipment by infrastructure developers/ financiers to the detriment of domestic capital goods manufacturers.

“As it is, very few lending agencies are willing to invest in the infrastructure sector in emerging economies. Even if they do, they have their unique set of problems such as lengthy appraisal process, pre-condition like sourcing of inputs from lending countries, etc. This reduces the number of viable sourcing options for NBFCs,” said a senior official with a leading NBFC.

NBFCs want the twin conditions whereby overseas lenders, at all times, are required to maintain the ratio of their direct lending to the infrastructure sector in India to their total ECB lending to NBFCs at 3:1 and that Authorised Dealer Category – I banks should obtain a certificate lenders to this effect, completely eliminated.

Smaller players

“There are smaller regional/ bilateral financial institutions which do not have the wherewithal to lend directly to infrastructure projects. They depend on domestic financial intermediaries (FIs) who have the expertise in financing such projects. Hence, they prefer to route their funds through local FIs for on-lending to small and medium infrastructure projects. Such overseas lenders will not be able to comply with the 3:1 ratio,” the official explained.

The non-banking financiers want a level playing field vis-À-vis infrastructure companies when it comes to tapping ECB under the ‘automatic route’ so that the credit needs of the smaller infrastructure developers can be met without much ado.

While larger infrastructure players are able to source ECBs on their own, the smaller players are not in a position to tap the overseas market. Hence, the smaller project developers’ bank on NBFCs for financing and the approval route causes unnecessary delays.

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