Big leg-up to infrastructure lending

RBI ANNUAL POLICY 2004-05/ MARKET MEASURES

Infrastructure lending by banks is set to get a big boost as the Reserve Bank of India has allowed them to raise money through long-term bonds with a minimum maturity of 5 years to the extent of their exposure of residual maturity of more than 5 years to the infrastructure sector. This measure will go a long way in correcting the asset liability mismatch of banks.

With regard to raising long-term bonds, the RBI said they should not in the nature of subordinated debt.

The central bank has also expanded the scope of definition of infrastructure lending to include the following projects/sectors: (i) construction relating to projects involving agro-processing and supply of inputs to agriculture; (ii) construction for preservation and storage of processed agro-products, perishable goods such as fruits, vegetables and flowers including testing facilities for quality; and (iii) construction of educational institutions and hospitals.

The RBI, in February 2002, had allowed banks and FIs to exceed the 50 per cent group exposure limit by 10 percentage points for all infrastructure projects. Hitherto, this relaxation was for projects in the power, roads, telecommunication and ports sectors. Last year, the Reserve Bank of India allowed banks to finance the promoters' contribution to equity capital in infrastructure projects.

The central bank has also halved the risk weightage for core sector funding to 50 per cent, in line with risk weightage for home loans.

This will be applicable to banks' investments in securitised paper pertaining to an infrastructure facility.

The RBI has also allowed banks to lend to special purpose vehicles in the private sector, registered under the Companies Act, for directly undertaking infrastructure projects.

Banks will be required to ensure that the bankruptcy or other financial difficulties of the sponsor should not affect the financial health of the SPV. Bank financing of the acquisition of equity shares by promoters will be within the regulatory ceiling of 5 per cent on capital market exposure in relation to its total outstanding advances (including commercial paper) on March 31 of the previous year.

The RBI said bank finance would be only for the acquisition of shares of existing companies that provide infrastructure facilities.

The acquisition of such shares should be in respect of companies where the existing foreign promoters and/or domestic joint promoters voluntarily propose to disinvest their majority shares in compliance with Securities and Exchange Board of India guidelines.

These companies should have a satisfactory net worth. The promoters or directors of such companies should not be a defaulter to banks and institutions.

The RBI has also added that bank financing should be restricted to 50 per cent of the finance required for acquiring the promoter's stake in the company being acquired. This is to ensure that the borrower has a substantial stake in the infrastructure company.