Renewable sector jittery on new external commercial borrowings norms

The restructuring of External Commercial Borrowings (ECB) norms by the Reserve Bank of India (RBI) has rattled the infrastructure industry, especially the renewable sector. Highly dependent on the ECB for refinancing due to lack of domestic source, the solar and wind sector would be deeply impacted, industry executives said.

According to the new norms, which were released last week, Tracks I and II under the existing framework are merged as “Foreign currency-denominated ECB” and Track III and Rupee Denominated Bonds framework are combined as “Rupee-denominated ECB”. This means, the current four-tiered structure has been replaced.

The permissible end use of repayment/refinancing of rupee loan, which used to be availed under Track-II of the ECB, has not been considered in the new merged Foreign Currency ECB framework in any form. The renewable industry has opposed this change.

As the lending rates in India are high for solar and wind power, project developers initially borrow fund from domestic banks/NBFCs at a high cost. After the commissioning of the project, which is ideally 12 months, most developers refinance the high-cost Rupee Loan from domestic lenders by low-cost Foreign Currency Loans by way of ECB.

A senior sector executive said due to weak financial condition of domestic lenders for long-term financing at competitive rate and overseas lenders’ reluctance to undertake project risks before commercial operation, Indian corporates seek refinancing of project loans in rupees from domestic lenders with Foreign Currency Loans by way of ECB from foreign banks/institutions/markets.

“Infrastructure projects require substantial time for commercial operation and huge financial outlays. Refinancing Rupee Loan by availing ECB is an accepted alternate funding tool for Indian corporates in the current low liquidity and lesser appetite domestic financial market,” he said.

This paper recently reported the renewable sector is facing a double whammy of traditional funding sources, such as banks and private and venture capital funds, drying up, and falling tariffs, making project funding difficult. The new ECB norms would make the situation more precarious for the sector.

Industry body National Solar Energy Federation of India (NSEFI) has written to the Prime Minister’s Office (PMO), requesting rationalisation of the ECB framework.

“NSEFI requests your good office to intervene in the matter and provide suitable direction/advice to the RBI to carve out a special category like erstwhile Track-II with ECB having minimum average maturity period of 5 years and above within the new merged Foreign Currency ECB category to permit solar/wind project developers for repayment of their Rupee Loans to domestic lenders from ECB proceeds,” said the letter, reviewed by Business Standard.

India has set itself an ambitious target of achieving 220 Gw of renewable capacity by 2022, up from the earlier 175 Gw. The current installed capacity is 75 Gw, of which wind is 35 Gw and solar 24 Gw.