Financing of Infrastructure Projects
The RBI has revised the definition of Infrastructure Lending vide Master Circular on Loans and Advances – Statutory and Other Restrictions dated July 1, 2015 read with Circular No. RBI/2012 13/297/DBOD.BP.BC.No 58/08.12.014/2012-13 dated 20/11/2012 on “Second Quarter Review of Monetary Policy 2012-13 – Definition of ‘Infrastructure Lending”.
The revised definition of ‘infrastructure lending’ will be effective from the date of this circular. The exposure of banks to projects under sub-sectors which were included under the previous definition of infrastructure, but not included under the revised definition, will continue to get the benefits under ‘infrastructure lending’ for such exposures till the completion of the projects. However, any fresh lending to those sub-sectors from the date of this circular will not qualify as ‘infrastructure lending’.
The definition of Infrastructure Lending would include credit facility extended by Lenders (i.e., Banks & Selected AIFIs) to a borrower for exposure in the various infrastructure sub-sectors as per paragraph 2.3.7.2 of Master Circular on Loans and Advances- Statutory and Other Restrictions dated July1, 2015,
read with Circular No. DBOD.BP.BC.No.66/08.12.2014/2013-14 on “Financing of Infrastructure – Definition of ‘Infrastructure Lending’” dated November 25, 2013.
In view of the critical importance of the infrastructure sector and high priority being accorded for development of various infrastructure services, Banks/FIs are free to finance technically feasible, financially viable and bankable projects undertaken by both public sector and private sector undertakings subjectnto the following conditions:
i. The amount sanctioned should be within the overall ceiling of the prudential
exposure norms prescribed by RBI for infrastructure financing.
ii. Banks/ FIs should have the requisite expertise for appraising technical bfeasibility, financial viability and bankability of projects, with particular reference to the risk analysis and sensitivity analysis.
iii. In respect of projects undertaken by public sector units, such term loans should not be in lieu of or to substitute budgetary resources envisaged for the project. The term loan could supplement the budgetary resources if such supplementing was contemplated in the project design. Banks/FIs are, advised to follow the above instructions scrupulously, even while making investment in bonds of sick State PSUs as part of the rehabilitation effort.
iv. Banks may also lend to SPVs in the private sector, registered under the Companies Act for directly undertaking infrastructure projects which are financially viable and not for acting as mere financial intermediaries. Banks may ensure that the bankruptcy or financial difficulties of the parent/ sponsor should not affect the financial health of the SPV.
Types of Financing by Banks
(i) In order to meet financial requirements of infrastructure projects, banks may extend credit facility by way of working capital finance, term loan, project loan, subscription to bonds and debentures/ preference shares/ equity shares acquired as a part of the project finance package which is treated as “deemed advance” and any other form of funded or non-funded facility.
(ii) Take-out Financing Banks may enter into take-out financing arrangement with IDFC/ other financial institutions or avail of liquidity support from IDFC/ other FIs. Banks may also be guided by the instructions regarding take-out Banks should ensure maintenance of stipulated margins at all times.
The tenor of the bank loans may not be longer than seven years. However, the Boards of banks can make an exception in specific cases, where necessary, for financial viability of the project.
This financing would be subject to compliance with the statutory requirements under Section 19(2) of the Banking Regulation Act, 1949.
The banks financing acquisition of equity shares by promoters should be within the regulatory ceiling of 40 per cent of their net worth as on March 31 of the previous year for the aggregate exposure of the banks to the capital markets in all forms (both fund based and non-fund based).
The proposal for bank finance should have the approval of the Board.