Keeping in view the special funding needs of the infrastructure sector, Reserve Bank of India (“RBI”) has issued a Circular (A.P. (DIR Series) Circular No. 4 dated 22 July, 2010) ‘ to liberalise the above refinancing restriction under a Take-out Finance Scheme. The said scheme is applicable to Indian corporates in the seaport and airport, roads including bridges and power sectors (eligible borrowers).
Take-out finance scheme
Rupee loans availed by eligible borrowers from domestic banks for development of new projects has been permitted to be refinanced through new ECBs, under the RBI approval route, subject to the following conditions:
(i) The borrower should have a tripartite agreement with the domestic banks and overseas recognised lenders for either a conditional or unconditional take-out of the loan within three years of the scheduled commercial operation date.
(ii) The minimum average maturity period of loan is seven years.
(iii) Any fee payable to overseas lender for pre takeout period shall not exceed 100 bps per annum.
(iv) Domestic banks would be governed by prudential norms related to take-out financing.
(v) The residual loan taken up by overseas lender shall be regarded as ECB and all existing ECB norms (including reporting requirements) shall need to be complied with.
(vi) Domestic banks / financial institutions would not be allowed to guarantee the ECB upon take-out or carry any obligation in its balance sheet in this regard.
The above liberalisation comes as a welcome step to Indian infrastructure companies which have long-term borrowings from domestic lenders.
