In a boost for the infrastructure sector, the Reserve Bank of India (RBI) today allowed companies engaged in the roads, ports and airport sectors to raise funds through external commercial borrowings (ECB) to retire their rupee loans.
The decision is expected to reduce the borrowing cost for companies engaged in developing infrastructure projects, which usually have a long gestation period.
"It has been decided to permit a take-out financing arrangement through ECBs, under the approval route, for refinancing of rupee loans availed from domestic banks by eligible borrowers in the sea port and airport, roads, including bridges, and power sectors for the development of new projects...," the RBI said in a statement.
Refinancing of domestic rupee loans with ECBs was not permitted earlier.
RBI said it decided to relax the norms for ECBs "keeping in view the special funding needs of the infrastructure sector".
Take-out financing permits lenders to infrastructure companies to sell a part of their loans to other financial institutions so that medium-term deposits do not come under pressure due to the long gestation period of projects.
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The RBI further said the new facility will be available only for loans with a minimum average maturity period of seven years.
The fee payable to the overseas lender will not exceed 100 bps (1 per cent) per annum, it said, adding that domestic banks and financial institutions will not be permitted to guarantee the take-out finance.