Easier foreign debt for core NBFCs

NEW DELHI: Non-banking finance companies that fund the infrastructure sector will be able to raise foreign debt more easily as the RBI and the government have decided to allow these entities to access foreign funds from all lending agencies. This will increase the flow of funds to the sector.

These specialised NBFCs were allowed to access foreign debt in January, 2008 from multilateral agencies such as KFW, World Bank, as a part of the stimulus package given to insulate the Indian economy from global financial meltdown.

However, the move hardly solved the problem of these specialised NBFCs as most of the multilateral organisations found it easier to lend directly to infrastructure projects. These NBFCs had petitioned to both the government and RBI, seeking flexibility to raise ECB from multiple entities to meet their on-lending requirement.

“These companies will now be able to raise overseas debt from mutiple agencies,” a government official said. The move will benefit public sector NBFCs such as Power Finance Corporation, Rural Electrification Corporation and private sector ones including Srei Infrastructure Finance, L&T Finance. However, these firms would be able to raise foreign debt only after securing a prior approval from the central bank.

However, they would be subject to prudential guidelines of the central bank. “This would make it easier and faster for these NBFCs to raise funds and thereby help improve the flow of funds to the infrastructure sector as a whole,” said Sanjay Hegde, executive director, PwC.

RBI had last month created a special category of infrastructure NBFCs, in a move aimed at encouraging flow of funds to the sector that would require about $ 500 billion over eleventh five year plan period.(2007-2012).

The central bank had earlier relaxed the condition that borrowings by these firms from multilateral and regional agencies should always be a third of their total direct lending to infrastructure companies in India.

ECBs have become an attractive source of funding for the infrastructure sector that requires low-cost long-term funding. Flow of resources to infrastructure sector through ECBs quadrupled from 2005-06 to 2007-08.