RBI lets asset financing NBFCs to raise long-term infra funds overseas

The Reserve Bank of India (RBI) has decided to allow NBFCs, categorised as asset finance companies  (AFCs) complying with prescribed RBI norms to avail of external commercial borrowings (ECBs), under the automatic route, from all recognised lenders, as per the ECB guidelines for a minimum average maturity of five years

The order aims at helping to finance import of infrastructure equipment for leasing to infrastructure projects.

In cases where the NBFC-AFCs avail of ECB in the form of foreign currency bonds from international capital markets, such Ebbs will be permitted to be raised only from those international  capital markets that are subject to regulations prescribed by the host country regulator in a financial action task force (FATF) member country compliant with FATF guidelines.

Such ECBs (including outstanding ECBs) under the automatic route may be availed up to 75 per cent of owned funds of NBFC-AFCs, subject to a maximum of $200 million or its equivalent per financial year; RBI said in a notification.

ECBs by AFCs that are above 75 per cent of their owned funds will be considered under approval route by the Reserve Bank and
the currency risk of such ECBs is required to be hedged in full.

The modifications to the ECB guidelines will come into force with immediate effect. All other aspects of the extant ECB guidelines remain unchanged, RBI said in its release.

As per the extant guidelines, non-banking financial companies are allowed to avail of ECB under approval route from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks with minimum average maturity of 5 years to finance import of infrastructure equipment for leasing to infrastructure projects.

Further, NBFC-infrastructure finance companies (IFCs) have been permitted to avail of ECB for on-lending to infrastructure sector both under automatic and approval routes subject to certain terms and conditions.