Infrastructure financing non-banking financial companies (NBFCs) have approached the Reserve Bank of India (RBI) for relaxation in the external commercial borrowing (ECB) norms, as the cap on the interest rate and ceiling on the tenure is affecting their fund-raising plans through this route.
Companies such as Srei Infrastructure Finance (SIFL) and Infrastructure Development Finance Company (IDFC) are in talks with foreign investors, who have shown willingness for long-term investment. IDFC is in talks with some foreign investors, who are willing to invest around $150 million through ECB for a period of 10 years.
“There are interests from certain institutions, who are ready to give us ECB funding for a longer tenure, but the rates will not be Libor plus 200, they are more into market terms. We have not explored them yet, as unless we get reprieve from RBI with respect to the guidelines for ECBs, it is not possible. So accordingly we have applied to the regulator based on the interests we have got,” said IDFC Executive Director, Vikram Limaye.
Present RBI guidelines allow NBFCs to raise resources up to $10 million through short term foreign currency borrowings for a maximum period of three years. Again the central bank has capped the interest rates on such loans at 200 basis points above six-month Libor (London Interbank Offered rate) for currency in which loans are being raised.
IDFC have made specific request to the regulator for relaxation on both, cap on interest rate and the tenure.
“From our perspective, if we are getting long term finance its better as we financing infrastructure projects which are long term in nature,” Limaye added.
Similarly, when contacted, SIFL Vice Chairman and Managing Director, Hemant Kanoria said, the company has proposals to raise resources worth $450 million through ECBs at market determined rate.
“We have approached RBI on the basis of the proposals and have requested the regulator to relax the guidelines particularly for the infrastructure financing companies as it is based on long term finance. It should be at par with the general companies,” he said.
The relaxation of the ECB guidelines is one of the key issues which are being raised by the industry leaders time and again over the recent past after domestic funding have become costly due to the financial crisis.
According to industry estimates there has been an asset liability mismatches in the balance sheets of NBFCs, with more than half of their borrowings have maturities of less than one year, over most of the assets having tenures of about three years.