RBI allows NBFCs to give takeout refinancing to infra projects

03 Jun 2016 Evaluate

Working on the references received from Non Banking Finance Companies (NBFCs) and the Department of Banking Operations and Development on Framework for Revitalising Distressed Assets in the Economy - Refinancing of Project Loans, Sale of NPA and Other Regulatory Measures and Refinancing of Project Loans, respectively, the Reserve Bank of India (RBI) has allowed NBFCs to refinance any existing infrastructure and other project loans by way of take-out financing, without it being considered as restructuring.

As per the notification, 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 same would not be considered as restructuring. However, such loans should be standard in the books of the existing lenders, and should have not been restructured in the past. “Such loans should be substantially taken over (more than 50% of the outstanding loan by value) from the existing financing lenders.” The central bank further said that the repayment period should be fixed by taking into account the life cycle of the project and cash flows from the project.

The RBI has further notified that for existing project loans where the aggregate exposure of all institutional lenders is minimum Rs 1,000 crore, NBFCs may refinance such loans by way of full or partial take-out financing, even without a pre-determined agreement with other lenders, and fix a longer repayment period, and the same would not be considered as restructuring in the books of the existing as well as taking over lenders, if it satisfies the condition that the project should have started commercial operation after achieving Date of Commencement of Commercial Operation (DCCO); the repayment period should be fixed by taking into account the life cycle of and cash flows from the project, and, Boards of the existing and new lenders should be satisfied with the viability of the project. Further, the total repayment period should not exceed 85% of the initial economic life of the project / concession period in the case of PPP projects.

It also stated that such loans should be 'standard' in the books of the existing lenders at the time of the refinancing; in case of partial take-out, a significant amount of the loan (a minimum 25% of the outstanding loan by value) should be taken over by a new set of lenders from the existing financing lenders; and the promoters should bring in additional equity, if required, so as 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.

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