ECB norms for core funding to be eased

The external commercial borrowing (ECB) policy is under review with a new focus on infrastructure financing. According to banking sources, the Reserve Bank of India and the fiancee ministry are working out the modalities to relax norms for those institutions which have exclusively been catering to the core sector.

Sources said there are various options under consideration. One of the views that has been emerging is to expand the list of the entities engaged in infrastructure lending by borrowing through ECBs under the approval route. This means that the proposal will have to be approved by RBI before the said entity goes for raising the money.

At present, this list includes six entities "" Infrastructure Development Finance Corporation, Infrastructure Leasing and Finance Services, Power Finance Corporation, Power Trading Corporation, Exim Bank and Indian Railway Construction (IRCON).

They are entitled to borrow ECB funds for onlending to infrastructure. Another option is to put the ECB route for onlending to the infrastructure sector under the ambit of automatic route.

This would help these companies to raise money without the mandatory approval of the RBI up to a certain limit.

However, sources said that banks need not be given the relaxation for infrastructure financing through ECBs as it will create a major asset-liability mismatches in their balance sheets. Moreover, it will also dent the pace of pick-up in the non food credit in the domestic market.

The RBI is also reviewing the norms for infrastructure lending by banks. While infrastructure lending makes part of the priority sector lending, the RBI has a list of areas which qualify for infrastructure lending and priority sector as well.

The list is being reviewed so as to expand the scope of activities that can qualify for infrastructure lending by the banks.

Infrastructure development and financing is one of the priority areas for the government and new norms are likely to be announced in the coming budget, said a source.

Modalities worked out by the government and RBI on use of foreign exchange reserves for infrastructure are expected to feature as part of the budget announcements as well.