Page 186 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Unit 8: Financial Institutions

Notes
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Case Study Infrastructure Financing: NBFCs for
Enlarging Global Lenders' Pool

limination of the restrictive condition, whereby overseas lenders are required to
have a direct exposure to infrastructure projects amounting to three times of what
Eis being lent to NBFCs, has been sought.

Mumbai, April 7 Non-banking finance companies, dedicated to financing infrastructure
projects, have moved the Reserve Bank of India to enlarge the pool of global lenders from
whom they can borrow. They have also sought elimination of the restrictive condition
whereby overseas lenders are required to have a direct exposure to infrastructure projects
amounting to three times of what is being lent to NBFCs.
NBFCs in the infrastructure financing space want the pool of overseas lenders, from
whom they can borrow, expanded to include reputed banks and bilateral financial
institutions so that they can source loans on favourable terms and conditions.
The big NBFC players in the infrastructure space include Infrastructure Development
Finance Company, SREI Infrastructure Finance, Power Finance Corporation and Rural
Electrification Corporation, among others.

ECB Restrictions
As per RBI's external commercial borrowings (ECBs) policy, sourcing of funds has been
restricted to multilateral/ regional financial institutions and government-owned financial
institutions.
Under the ECB policy, NBFCs can avail themselves of ECB up to $500 million per financial
year under the 'approval route' to finance import of equipments for leasing to infrastructure
projects in India. The average maturity of the borrowing should be five years. The
requirement of all-in-cost ceilings on ECB has been dispensed with until June 30, 2009.
Analysts say that the ECB policy encourages import of capital equipment by infrastructure
developers/financiers to the detriment of domestic capital goods manufacturers.

"As it is, very few lending agencies are willing to invest in the infrastructure sector in
emerging economies. Even if they do, they have their unique set of problems such as
lengthy appraisal process, pre-condition like sourcing of inputs from lending countries,
etc. This reduces the number of viable sourcing options for NBFCs," said a senior official
with a leading NBFC.
NBFCs want the twin conditions whereby overseas lenders, at all times, are required to
maintain the ratio of their direct lending to the infrastructure sector in India to their total
ECB lending to NBFCs at 3:1 and that Authorised Dealer Category - I banks should obtain
a certificate lenders to this effect, completely eliminated.
Smaller Players

"There are smaller regional/ bilateral financial institutions which do not have the
wherewithal to lend directly to infrastructure projects. They depend on domestic financial
intermediaries (FIs) who have the expertise in financing such projects. Hence, they prefer
to route their funds through local FIs for on-lending to small and medium infrastructure

Contd...

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