RBI has permitted infrastructure companies to tap the external commercial borrowings, or ECB route, to enable them to get much needed funds to kickstart stalled projects

In an effort to boost the otherwise stalled infrastructure sector and get projects off the ground, the Reserve Bank of India (RBI) has decided to permit infrastructure companies to tap the external commercial borrowings (ECB) route to fund infrastructure projects.

RBI in its circular dated 3^rd December said, “In order to strengthen the flow of resources to infrastructure sector, it has been decided to permit holding companies & core investment companies (CICs) coming under the regulatory framework of the RBI to raise ECB under the automatic route or approval route for project use in Special Purpose Vehicles (SPVs).”
 

However, this is subject to specific terms and conditions as listed below:

1. The business activity of the SPV should be in the infrastructure sector only, as per ECB guidelines.
2. An infrastructure project is required to be implemented by the SPV established solely for the purpose of carrying out the infrastructure project.
3. The ECB proceeds are utilised either for fresh capital expenditure (capex) or for refinancing of existing Rupee loans (under the approval route) availed of from the domestic banking system for capex as per the extant norms on refinancing.
4. The ECB for SPV can be raised up to three years after the commercial operations date of the SPV or infrastructure project.
5. The SPV (of an infrastructure project) should give an undertaking that, no other method of funding, such as, trade credit (if for import of capital goods), etc, will be utilised for that portion of fresh capital expenditure financed through ECB proceeds.
6. The ECB proceeds should be kept in a separate escrow account as per the extant guidelines on parking of ECB proceeds pending utilisation for permissible end-uses and use of such proceeds should be strictly monitored by the ADs for permissible uses.
7. In case of Holding Companies that come under the Core Investment Company (CIC) regulatory framework of the Reserve Bank, the additional terms and conditions for raising ECB for project use in SPVs will be as under:
   1. The ECB availed should be within the ceiling of leverage stipulated for CICs, their outside liabilities including ECB cannot be more than 2.5 times of their adjusted net worth as on the date of the last audited balance sheet.
   2. In case of CICs with asset size below Rs100 crore, the ECB availed of should be on fully hedged basis.

RBI said that an earlier stipulation that maximum 25 % of ECB raised by the infrastructure companies can be utilised for refinancing of the rupee loans availed from the domestic banking system (40% in case of power sector) would remain unchanged.