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The Reserve Bank of India (RBI) Thursday allowed non-banking finance companies (NBFC) to provide takeout financing to projects, an option so far available to only banks.
In a notification, the central bank said NBFCs can provide takeout financing for existing infrastructure loans subject to certain conditions. “NBFCs may refinance any existing infrastructure and other project loans by way of take-out financing, without a pre-determined agreement with other lenders, and fix a longer repayment period,” the central bank said.
Takeout financing is a route of refinance wherein new lenders take over project loans of existing lenders and thereby stretch the loan’s repayment over a longer period. Through this route, existing lenders get relief on their capital to pursue new lending opportunities and infrastructure projects get the benefit of a longer repayment period.
The RBI said that for project loans of up to Rs.1000 crore, NBFCs can take over a minimum 25% of the existing loan through partial take-out financing. For larger loans, NBFCs will have to take over at least 50% from existing lenders.
The RBI said that refinancing through this route would not be considered as restructured if the loans are classified as standard in the books of all other existing lenders to the project and has not been restructured in the past.
For loans up to Rs.1000 crore, refinancing would not be termed as restructuring if the project in question has begun commercial operations and the existing loan is standard in the books of all other lenders.
Further, the repayment period that the NBFC fixes should take into account the life cycle of the project and not the cash flows associated with it. The promoters should bring in additional equity, if required, to reduce the debt to make the current debt-equity ratio and Debt Service Coverage Ratio (DSCR) of the project loan acceptable to the NBFCs, the RBI said.
Thursday’s move is in keeping with the RBI’s broad aim to bring NBFCs on par with banks in terms of regulations. #casansaar (Live Mint)
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