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Unit 7: Non-banking Financial Companies

30 crores by the State Government on the recommendation of SIDBI. The SFCs, while Notes
approaching SIDBI for enhanced refinance limit, have also requested them to recommend the
increase in this threshold limit to the State Government to enable them to avail of these
relaxations. It has, however, been noticed that the response from SIDBI to the above request
being made by SFCs has not been encouraging. SIDBI is reported to have expressed its reservations
to increase the refinance limits as also enhancement in the level of owned-funds of the borrowing
units. The reluctance on the part of SIDBI to release adequate refinance to eligible SFCs to enable
them to finance medium scale industrial units appears to be retrograde step and tends to defeat
the very purpose of enhancing the accommodation limit. In the absence of adequate availability
of refinance from SIDBI and inability of SFCs to mobilize their own resources, the present trend
of industrial units going away from SFCs to commercial banks and other financial institutions
would continue unabated to the detriment of SFCs' interest.
Since the SFCs have been conceived as institutions of national importance engaged in the strategic
task of promoting industrialisation in the rural and backward regions of the States, SIDBI and
the State Governments must provide required support to enable them to play their envisaged
developmental role in the national economy.

Case Study Infrastructure Financing: NBFCs for enlarging
Global Lenders' Pool

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, 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 millions 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.
Contd...

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