Credit enhancement seeks to lift infrastructure projects

The Indian government permits external commercial borrowings (ECB) as an additional means of finance for Indian companies, thereby enabling them to augment their existing capacity and to supplement domestic resources. According to existing ECB norms, domestic rupee-denominated structured obligations can be credit enhanced by overseas entities, namely international banks and financial institutions and joint venture partners, under the approval route.

In addition to making funding available via the ECB route, the government has also implemented various mechanisms to provide increased funding to the infrastructure sector through the establishment of development finance institutions like the Industrial Development Bank of India, the Industrial Finance Corporation of India, ICICI, etc. However, such institutions have not been able to keep pace with the escalating funding needs of the infrastructure sector.

In light of the increasing financial requirements of the infrastructure sector, the Reserve Bank of India (RBI), through its Circular dated 2 March, has enacted a comprehensive policy framework to permit credit enhancement facilities to be used for domestic debt raised exclusively by corporate entities engaged in infrastructure development and finance.

Shardul Thacker is a partner with Mulla & Mulla & Craigie Blunt & Caroe in Mumbai.