RBI allows infra cos to raise funds in Yuan up to $1bn

The Reserve Bank today allowed infrastructure companies to raise funds in Chinese currency Yuan up to USD 1 billion to fund infrastructure development in the country, which requires investment to the tune of USD 1 trillion in next 5 years.

On a review of the current External Commercial Borrowing (ECB) policy, it has been decided, in consultation with the Government of India, to allow Indian companies which are in the infrastructure sector, to avail of ECBs in Renminbi(Yuan), under the approval route, RBI said in a notification.

This is subject to an annual ceiling of USD one billion pending further review, it said.

Once approved, it said the approval of the RBI will be valid for a period of three months from the date of issue of the approval letter and the loan agreement should be executed within the validity period.

It is to be noted that the government has already said that the infrastructure sector requires investment of USD 1 trillion during the 12th plan (2012-17). Of this 50% would come from the private sector.

Banks will be permitted to open Nostro accounts in Renminbi (RMB). The designated bank shall monitor the end-use of funds and bank in India will not be permitted to provide any form of guarantee, it said.

The amended ECB policy will come into force with immediate effect and is subject to review, it said. Yesterday, RBI relaxed ECB norms for the infrastructure companies with foreign stake.

Direct foreign equity holder (holding minimum 25% of the paid-up capital) and indirect foreign equity holder with at least 51% of the paid-up capital, will be
permitted to provide credit enhancement for the domestic debt raised by Indian companies engaged exclusively in the development of infrastructure through issue of capital market instruments, it said.

It includes Infrastructure Finance Companies (IFCs) and no prior approval will be required from the Reserve Bank for providing such credit enhancements, it said.

The company fulfilling foreign equity criteria does not require permission for raising ECB up to USD 5 million.