The Reserve Bank of India has allowed banks to finance the promoters' contribution to equity capital in infrastructure projects.
The central bank has also halved the risk weightage for core sector funding to 50 per cent, in line with risk weightage for home loans.
This will be applicable to banks' investments in securitised paper pertaining to an infrastructure facility.
The RBI has also allowed banks to lend to special purpose vehicles in the private sector, registered under the Companies Act, for directly undertaking infrastructure projects.
Banks will be required to ensure that the bankruptcy or other financial difficulties of the sponsor should not affect the financial health of the SPV.
The new norms are expected to give a tremendous boost to core sector financing, bankers said. Among commercial banks, ICICI Bank has the largest exposure to the core sector -- about Rs 15,000 crore (Rs 150 billion) -- followed by the Industrial Development Bank of India at around Rs 10,000 crore (Rs 100 billion).
The RBI had in 1998 stipulated that the promoter's contribution to equity capital of a company should come from the promoter's own resources and the bank should not normally grant advances to take up shares of other companies.
Now the RBI directive says: "An exception may be made to this policy for financing the acquisition of promoter's shares in an existing company which is engaged in implementing or operating an infrastructure project in India."
Bank financing of the acquisition of equity shares by promoters will be within the regulatory ceiling of 5 per cent on capital market exposure in relation to its total outstanding advances (including commercial paper) on March 31 of the previous year.
The RBI said bank finance would be only for the acquisition of shares of existing companies that provide infrastructure facilities.
The acquisition of such shares should be in respect of companies where the existing foreign promoters and/or domestic joint promoters voluntarily propose to disinvest their majority shares in compliance with Securities and Exchange Board of India guidelines.
These companies should have a satisfactory net worth. The promoters or directors of such companies should not be a defaulter to banks and institutions.
The RBI has also added that bank financing should be restricted to 50 per cent of the finance required for acquiring the promoter's stake in the company being acquired.
This is to ensure that the borrower has a substantial stake in the infrastructure company.
The finance should be extended against the security of the assets of the borrowing company or the assets of the company acquired and not against the shares of that company or the company being acquired.
The shares of the company may be accepted as additional security and not as primary security and the security charged to the banks should be marketable, the RBI directive said.
Bank loans should not be longer than seven years. However, for the financial viability of the project, the boards of banks can make an exception in specific cases.
Referring to banks' investment in securitised paper pertaining to an infrastructure facility which will get only 50 per cent risk weightage, the RBI said that the facility should be generating income which would ensure servicing of the securitised paper.
The paper should have a triple-A rating.
The securitised paper should be a performing asset on the books of the investing/ lending institution.
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