Infrastructure finance companies may borrow more through the external commercial borrowing (ECB) route following the easing of norms by the Reserve Bank of India (RBI) on Monday. Companies such as India Infrastructure Finance Company (IIFCL), Rural Electrification Corporation (REC), Power Finance Corporation (PFC), Indian Railway Finance Corporation (IRFCL) are likely to benefit from this.
“We already have RBI approvals to borrow up to $750 million for the financial year, of which we had raised $250 million through syndicated term loans some time ago. If market permits, we will definitely look at enhancing our borrowing for the year, since the relaxation of norms gives us more room,” said Ajeet Agarwal, the director (finance), REC.
PFC too believes easing norms would surely be positive for infrastructure finance companies since foreign funding comes at a more nominal rate than local borrowing. “As of now we have $1.2 billion worth of line of credit from the World Bank, of which we have raised only $70 million. These kind of multilateral borrowings come at a rate of 50-60 basis points over and above LIBOR. Whether we will go for ECB route to borrow further or not will be decided later,” said a senior official at PFC.
The central bank has allowed infrastructure finance companies to raise up to 75% of their net owned funds through the ECB route under the automatic route (without RBI’s permission), up from the earlier limit of 50%. Under the approval route, companies will have to seek permission on a case-to-case basis for any borrowing beyond the designated 75%. RBI also reduced the hedging requirement for currency risk to 75% of the exposure of these companies from previous hedging requirement of 100%.
Non-banking finance companies which lend to the infrastructure sector take ECB route when onshore borrowing turns out to be more expensive than off-shore borrowing. In FY12, Indian companies had raised up to $35.96 billion through ECB route. Between April-November this financial year, Indian companies have already raised up to $20.62 billion, through ECB route, monthly data released by RBI suggest.
In last financial year, RBI had eased ECB norms for the infrastructure sector by saying that a portion of fresh ECBs raised by companies could be used to repay their rupee loans from domestic banking system, for completed infrastructure projects.