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Our Bureau

New Delhi, July 1 The Centre has dispensed with what was being perceived as a “non-starter” condition for allowing non-banking finance companies (NBFCs) to avail themselves of overseas funding from multilateral financial institutions for on-lending to borrowers in the infrastructure sector.

This move is expected to ease the difficulties faced by certain NBFCs for obtaining the Reserve Bank of India approval for availing themselves of external commercial borrowings (ECBs) from multilateral/regional financial institutions, say experts in the financial sector. In January this year, the RBI had, as part of ECB policy changes, allowed NBFCs which are exclusively involved in financing of the infrastructure sector, to avail themselves of ECBs from multilateral/regional financial institutions and Government-owned development financial institutions under the approval route. The ECBs could be availed of by such NBFCs only for on-lending to borrowers in the infrastructure sector.

However, it was specified then that while considering the applications, the RBI will take into account the aggregate commitment of these lenders directly to infrastructure projects in India. The direct lending portfolio of the lenders vis-a-vis their total ECB lending to NBFCs, at any point of time should not be less than 3:1, the ECB policy had stipulated.

The eligible lenders were required to give a certificate to the category-I banks here that this condition has been met. This policy was due for review in June 2009. It has now been decided to dispense with this condition (3:1 norm) with effect from July 1, 2009. The proposals, however, will continue to be examined by the RBI under the approval route, as hitherto, an official release said.

“The latest ECB policy change will lead to better access to ECB funding for NBFCs that are exclusively dealing with infrastructure financing”, Mr Ashok Haldia, former Secretary, the Institute of Chartered Accountants of India (ICAI), told Business Line.

Mr Hitesh Gajaria, Executive Director, KPMG, said that the Centre’s move to do away with the “redundant condition” would not open the floodgates for ECB funding by NBFCs.

However, he pointed out that this move would ease the difficulties faced by them in obtaining the RBI approval for availing ECBs from the multilateral institutions.

More Stories on : NBFCs | Overseas Borrowings | Infrastructure

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