The Finance Industry Development Council (FIDC) has hailed the RBI proposal to allow NBFC-AFCs to use ECB funds for financing of all infrastructure equipment (both domestic and foreign).

This proposal, which formed part of the draft framework on ECBs released on Thursday, will boost NBFC-AFCs investment in infrastructure, Raman Aggarwal, newly elected Chairman of FIDC told Business Line here.

The draft framework allows NBFC-AFCs to use ECB funds to not only finance foreign infrastructure equipment imported into India, but also domestically manufactured equipment.

Current regulatory framework does not allow NBFC-AFCs to use ECB funds to finance domestic (locally manufactured) equipment.

The RBI's draft framework also allows NBFC-AFCs to use ECB funds to undertake all forms of financing. As on date, the only permitted mode of financing is 'leasing'.

The proposal now is to allow all forms including hire purchase, loans against hypothecation.

Aggarwal said that the RBI's draft framework has in a way justified the central bank's move of July 2013 allowing NBFC-AFCs to avail External Commercial Borrowings (ECBs) under the automatic route. 

The draft framework is also in line with the recommendations of the Sahoo Panel report on ECB, Aggarwal said.

FIDC, a self regulatory body for registered NBFC-AFCs, had last year written to RBI Governor that the restriction on use of ECB funds for financing only imported equipment was "imprudent" and "highly restrictive".

It had pointed out that majority of infrastructure equipment are sourced locally and not imported.

Majority of the leading infrastructure equipment manufacturers of the world have set base in India either directly or through a joint venture with domestic partner, FIDC had then said.

Srivats.kr@thehindu.co.in

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