Govt wants RBI to ease ECB, priority sector lending norms

Arun S Updated - November 17, 2017 at 08:32 PM.

The Government has asked the Reserve Bank of India to consider easing External Commercial Borrowing (ECBs) and priority sector lending norms for smooth, cost-effective financing of the $90-billion Delhi-Mumbai Industrial Corridor (DMIC) project.

ECB is a short-term (minimum average maturity of three years), cheap commercial loan obtained from overseas lenders.

The conditions

The RBI recently relaxed the ECB norms for the power sector.

In a circular in April, the central bank said: “Indian power companies will be allowed to utilise 40 per cent of the fresh ECB raised towards refinancing of the rupee loans availed by them from the domestic banking system, under the approval route.”

The condition it set was that at least 60 per cent of the fresh ECB raised should be used for new capital expenditure for infrastructure projects.

The Finance Ministry now wants the same norms extended to ECB financing for the DMIC project, official sources told Business Line . They added that such a move will help meet working capital requirements and in repaying the rupee loans.

PRIORITY SECTOR

The aim is to make funds available for infrastructure projects such as the DMIC, with long gestations periods and at a reasonable cost, they said. The Government has also demanded that the RBI revise its ‘priority sector’ guidelines to include ‘lending to the DMIC project’.

Agriculture, small enterprises and micro-finance institutions are among the sectors under ‘priority sector lending’.

The ‘priority sector’ tag for the DMIC would not only give comfort to bankers in meeting their overall ‘priority sector lending’ target, but also help game-changing infra projects such as the DMIC get long-term funds, the sources said.

Priority area

But the RBI has to consider issues whether other banks or countries will queue up for similar privileges (to be given to banks financing the DMIC project) for certain big-ticket infrastructure projects they are funding in India.

Infrastructure remains a priority area for the Government, which is keen on $1 trillion investment in the sector during the 12th Five Year Plan (2012-17). In this effort, the DMIC is one of the flagship infra projects.

> arun.s@thehindu.co.in

Published on July 6, 2012 16:42