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European Investment Bank upbeat on India

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NEW DELHI, Jan. 30

THE European Investment Bank (EIB), the long-term financing arm of the European Union (EU) and the world's largest multilateral funding institution, has finally given a thumbs-up to India. Nearly a decade after signing an agreement with India in 1993 that granted it the preferred creditor status, the EIB has decided on its first loan to an Indian private sector entity, with promise that a lot more euros are going to flow into the country.

The deal has been struck with Rabo India Finance Ltd under which the finance company that is soon set to turn into a bank would avail of a line of credit between 40-50 million euros (1 euro=Rs 52) for lending to small and medium enterprises. The deal would have to get the formal approval of the board of directors of EIB.

"We expect loans to Indian entities going up to anywhere between 100-150 million euros within a short span of time," Mr Philippe Szymczak, Senior Loan Officer, Operations in Asia, said.

He said that EIB's long delay in sanctioning its first private was due to the fact that there was no eligible demand raised from anyone in India. However, he said that the mood within EIB, which had a lending volume of 40 billion euros in calendar 2002, that is almost four times that of the World Bank, is quite positive on India.

"The overall investment climate has improved in India. Norms for foreign direct investments have been eased which is expected to lead to substantial direct investments from Europe. Regulators and regulations for a number of important sectors have been announced. The privatisation process is also moving ahead. We are quite positive on India," Mr Szymczak said.

He said that the lending from the bank would not be limited to any specific sector but would be spread out among various areas. He listed environmental sector, water, sanitation, renewable energy, agro-industry, telecom, infrastructure sector such as airports, mining and tourism as some of the areas that the bank would be willing to lend to.

He, however, said that each loans would necessarily have to have some specific European interest associated with it. Thus, the beneficiary should either be a subsidiary of a European company or a joint venture between Indian and European companies or should lead to a substantial transfer of technology from Europe to India.

He ruled out tied assistance to boost exports from Europe into India. "The loans would be for increasing manufacturing and production activities only. They would be extended for genuine investments and not for restructuring or for financing mergers or acquisitions," Mr Szymczak said. He said that besides direct assistance to private sector, lines of credit could be availed by banks and development financial institutions.

Hoping that more Indian entities would avail of the facility being offered, Mr Szymczak pointed out that the interest rate offered by EIB are the most competitive among multilateral institutions. While the fixed rate for a 10-year dollar loan was 4.31 per cent at present, the variable rate is `Libor+10-15' basis points, which currently amounts to 1.52 per cent.

However, to eliminate credit risk the EIB under its mandate stipulates that each loan would have to be guaranteed by an international bank with `A' or `A2' rating or in case of PSU borrowers a sovereign guarantee.

EIB, which was set up in 1958 and has 15 EU member states as its shareholders, supports investment projects in around 150 non-member countries spread across the world. The bank is the largest borrower in the international capital markets with annual borrowing of 32 billion euros in 2001.

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