March 02, 2010

To

All Category - I Authorised Dealer Banks

Madam / Sir,

External Commercial Borrowings (ECB) Policy –
 Structured Obligations

Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to Notification No.FEMA 29/2000-RB dated September 26, 2000 viz. Payment to person resident outside India on invocation of guarantee, A.P. (DIR Series) Circular No. 28 dated March 30, 2001 and A.P. (DIR Series) Circular No. 5 dated August 1, 2005 relating to External Commercial Borrowings (ECB).

2. Borrowing and lending of Indian Rupees between two persons resident in India does not attract the provisions of the Foreign Exchange Management Act, 1999. In case where a Rupee loan is granted against the guarantee provided by a person resident outside India, there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. The Reserve Bank vide Notification No. FEMA 29/2000-RB dated September 26, 2000 has granted general permission to a person resident in India, being a principal debtor, to make payment to a person resident outside India, who has met the liability under a guarantee.

3. As per the extant policy, domestic Rupee denominated structured obligations have been permitted to be credit enhanced by non-resident entities under the approval route. In view of the growing needs of funds in the infrastructure sector, the existing norms have been reviewed and it has been decided to put in place a comprehensive policy framework on credit enhancement to domestic debt as indicated below:

4. It has since been decided that the facility of credit enhancement by eligible non-resident entities may be extended to domestic debt raised through issue of capital market instruments, such as debentures and bonds, by Indian companies engaged exclusively in the development of infrastructure and by the Infrastructure Finance Companies (IFCs), which have been classified as such by the Reserve Bank in terms of the guidelines contained in the circular DNBS.PD. CC No. 168 / 03.02.089 / 2009-10 dated February 12, 2010, subject to the following conditions:

1. credit enhancement will be permitted to be provided by multilateral / regional financial institutions and Government owned development financial institutions;
2. the underlying debt instrument should have a minimum average maturity of seven years;
3. prepayment and call / put options would not be permissible for such capital market instruments up to an average maturity period of 7 years;
4. guarantee fee and other costs in connection with credit enhancement will be restricted to a maximum 2 per cent of the principal amount involved;
5. on invocation of the credit enhancement, if the guarantor meets the liability and if the same is permissible to be repaid in foreign currency to the eligible non-resident entity, the all-in-cost ceilings, as applicable to the relevant maturity period of the Trade Credit / ECBs, would apply to the novated loan. Presently, the all-in-cost ceilings, depending on the average maturity period, are applicable as follows:

    

   Average maturity period of the loan on invocation	All-in-cost ceilings over 6 month Libor*
   Up to 3 years	200 basis points
   Three years and up to five years	300 basis points
   More than five years	500 basis points
   *for the respective currency of borrowing or applicable benchmark

   
    
6. In case of default and if the loan is serviced in Indian Rupees, the applicable rate of interest would be the coupon of the bonds or 250 bps over the prevailing secondary market yield of 5 years Government of India security, as on the date of novation, whichever is higher;
   
    
7. IFCs proposing to avail of the credit enhancement facility should comply with the eligibility criteria and prudential norms laid down in the circular DNBS.PD.CC No.168 / 03.02.089 / 2009-10 dated February 12, 2010 and in case the novated loan is designated in foreign currency, the IFC should hedge the entire foreign currency exposure; and
   
    
8. The reporting arrangements as applicable to the ECBs would be applicable to the novated loans.

5. Necessary amendments to the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 dated May 3, 2000 are being issued separately wherever necessary.

6.  AD Category-I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

7.  The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law.

Yours faithfully,


(Salim Gangadharan)
Chief General Manager-in-Charge

RBI/2009-10/316
DNBS.PD. CC No.168/03.02.089 /2009-10

February 12 , 2010

All Non-Banking Financial Companies
excluding Residuary Non-Banking Companies

Dear Sir,

Infrastructure Finance Companies

Please refer to paragraph 178 of the Second Quarter Review of the Monetary Policy for the year 2009-10. NBFCs-ND-SI engaged predominantly in infrastructure financing have represented to the Reserve Bank that there should be a separate category of infrastructure financing NBFCs in view of the critical role played by them in providing credit to the infrastructure sector. Currently, the Reserve Bank has classified NBFCs under three categories, viz., Asset Finance Companies, Loan companies and Investment Companies. It has now been decided to introduce a fourth category of NBFCs as "Infrastructure Finance Companies"(IFCs).

2.  Accordingly, it is advised that the present classification of NBFCs stands modified to include IFCs. An IFC is defined as non deposit taking NBFC that fulfills the criteria mentioned below:

i) a minimum of 75 per cent of its  total assets should be deployed in infrastructure loans as defined in Para 2(viii) of the Non Banking Financial (Non Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007;

ii) Net owned funds of Rs. 300 crore or above;

iii)  minimum credit rating  'A'  or equivalent of CRISIL, FITCH, CARE, ICRA  or  equivalent rating by any other accrediting rating agencies 

iv) CRAR of 15 percent (with a minimum Tier I capital of 10 percent).

3.  IFCs may exceed the concentration of credit norms as provided in paragraph 18 of the aforesaid Directions as under:

(i)  in lending to

(a) any single borrower by ten per cent of its owned fund; and
(b) any single group of borrowers by fifteen per cent of its owned  fund;

(ii)  in lending and investing  (loans/investments taken together)  by

(a)  five percent of its owned fund to a single party; and
(b) ten percent of its owned fund to a single group of parties. 

(iii) The extant norms for investment for both single party and single group of parties will remain same as in Para 20 of the Directions referred to above.

4. The present norms relating to infrastructure loan as laid out in Para 20 of the aforesaid Directions will continue for NBFCs that do not meet the criteria to be classified as IFCs.

5.  Since the classification for the purpose of income recognition, asset classification and provisioning norms is based on asset specification, the extant prudential norms will continue as hitherto.

6.  The companies satisfying the above conditions may approach the Regional Office in the jurisdiction of which their Registered Office is located, along with the original Certificate of Registration (CoR) issued by the Bank for classification as Infrastructure Finance Companies. Their request must be supported by a certificate from their Statutory Auditors confirming the asset /income pattern of the company as on March 31, of the latest financial year. The change in classification would be incorporated in the Certificate of Registration issued by the Bank as NBFC-ND-IFC.

7. The onus of including only eligible assets for the purpose of classification as IFC shall be that of the company concerned.

Yours faithfully,

(A.S.Rao)
Chief General Manager In-Charge

Notification No. DNBS. 213 / CGM(ASR)-2010 dated  February 12, 2010

The Reserve Bank of India, having considered it necessary in public interest and being satisfied that, for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to amend the Non-Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, contained in Notification No. DNBS. 193/DG(VL)-2007 dated February  22, 2007 (hereinafter referred to as the Directions), in exercise of the powers conferred by sections 45J, 45JA and 45L of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, hereby directs that the said Directionsshall be amended with immediate effect as follows, namely -

1. Amendment of paragraph 1–

In sub-paragraph (3), at the end of clause (i) the words, “including an infrastructure finance company”, shall be inserted.

2   Amendment of paragraph 2 –

(1) In sub-paragraph (1), after clause (vii), the following clause (viia) shall be inserted .  

“(viia) ‘Infrastructure Finance Company’ means a non-banking finance company which deploys at least 75 per cent of its total assets in infrastructure loans”

(2) In sub-paragraph (1), in clause (viii), after sub-clause (h), the following sub-clause (ha) shall be inserted.

"(ha) laying down and/or maintenance of gas, crude oil and petroleum pipelines"  

(3)  In sub-paragraph (1), in clause (viii), sub-clause (k), viz, "construction of educational institutions and hospitals" shall be deleted.

3. Insertion of new paragraph -

After paragraph 19, the following paragraph 19A shall be inserted–

“Requirements for Infrastructure Finance Company -

19A. An Infrastructure Finance Company shall, -

1. not accept deposits from the public;
2. have net owned funds of Rs. 300 crore or above;
3. have a minimum credit rating  'A'  or equivalent of CRISIL, FITCH, CARE, ICRA  or equivalent rating by any other accredited rating agencies; and
4. have a CRAR of 15 percent  (with a minimum Tier I capital of 10 percent).

4. Amendment of paragraph 20 –

(1) After sub-paragraph (12), the following sub-paragraph (12A) shall be inserted.

"(12A) Infrastructure Finance Companies may exceed the concentration of credit norms as provided in paragraph 18 of the aforesaid Directions,

(i)  in lending to

   (a) any single borrower, by ten per cent of its owned fund; and
   (b) any single group of borrowers, by fifteen per cent of its owned  fund;

(ii)  in lending to and investing in, (loans/investments taken together)

   (a)  a single party, by five percent of its owned fund; and
   (b) a single group of parties, by ten percent  of its owned fund. 

(A S Rao)
Chief General Manager In-Charge