Mumbai, Dec. 3: The RBI has widened the external commercial borrowing (ECB) route for infrastructure projects.
ECB funds under the automatic route will now be available to holding companies and core investment companies (CICs) that float special purpose vehicles for infrastructure projects.
Holding companies/CICs usually form an SPV for a specific infrastructure project.
The move is expected to strengthen the flow of funds into infrastructure but comes with certain riders.
In a circular issued today, the central bank said the business activity of the SPV should be in the infrastructure sector and the project must be implemented by the SPV established exclusively for the project.
The RBI added that the ECB proceeds must be utilised either for fresh capital expenditure or for refinancing of existing rupee loans (under the approval route) taken from local banks.
While companies can raise ECBs up to three years after the SPV starts commercial operations, the SPV should give an undertaking that no other funding method would be utilised for that portion of fresh capital expenditure financed through the ECB proceeds.
ECB funds will have to be kept in a separate escrow account pending utilisation for permissible end-uses. The RBI said the use of the proceeds should be strictly monitored by the authorised dealers or banks.
In case of holding companies that come under the CIC regulatory framework of the RBI, there will be additional terms and conditions for raising ECBs.
The apex bank said that for CICs with assets under Rs 100 crore, ECBs should be fully hedged. Besides, the outside liabilities of the CIC, including ECBs, should not be more than 2.5 times of its net worth.
CIC are companies whose assets mainly constitute investments in shares for holding stake in group companies.
According to RBI rules, these shares should not be held for trading or for any other financial activity.