What changed
Previously, refinancing domestic rupee loans with ECB was not allowed. This circular introduces a take-out finance scheme under approval route for specific infrastructure sectors, allowing overseas lenders to take out loans within three years of COD. Conditions include tripartite agreement, minimum 7-year average maturity, and fee cap of 100 bps per annum.
What it means for you
Banks can now structure infrastructure loans with a planned exit via ECB, reducing their long-term exposure. However, banks cannot guarantee the take-out or retain any balance sheet obligation post take-out. This may improve liquidity for banks but requires careful compliance with prudential norms and reporting.
What you must do
- Review existing infrastructure loan portfolios for eligibility under the take-out finance scheme.
- Ensure tripartite agreements with overseas lenders clearly specify take-out timeline within three years of COD.
- Comply with prudential norms for take-out financing and avoid providing guarantees to overseas lenders.
- Guide eligible borrowers to apply to RBI for approval before entering into take-out arrangements.
- Update internal policies and training to reflect the new ECB take-out finance conditions.
Who it affects
AD Category-I banks, Infrastructure borrowers in sea port, airport, roads, and power sectors, Domestic banks financing infrastructure projects, Overseas recognized lenders
Can domestic banks guarantee the take-out finance under this scheme?
No, domestic banks or financial institutions are not permitted to guarantee the take-out finance.
What is the maximum fee payable to the overseas lender until the take-out?
The fee payable, if any, shall not exceed 100 basis points per annum.
Does this circular change the existing ECB limit under automatic route?
No, the USD 500 million limit per company per financial year under automatic route remains unchanged.