On October 14, 2019, the Reserve Bank of India (“RBI”) issued a notification on lending by banks and All-India Financial Institutions to Infrastructure Investment Trusts (“InvITs”).
In terms of the aforesaid notification, banks are permitted to provide credit facilities to InvITs subject to the following conditions:
A default, as per the definition provided in the framework, shall be treated as an indicator for financial difficulty, irrespective of reasons for the default.
A borrower not in default, but it is probable that the borrower will default on any of its exposures in the foreseeable future without the concession, for instance, when there has been a pattern of delinquency in payments on its exposure.
A borrower not in default, but it is probable that the borrower will default on any of its exposures in the foreseeable future without the concession, for instance, when there has been a pattern of delinquency in payments on its exposures.
On the basis of actual performance, estimates and projections that encompass the borrower’s current level of operations, the borrower’s cash flows are assessed to be insufficient to service all of its loans or debt securities (both interest and principal) in accordance with the contractual terms of the existing agreement for the foreseeable future.
A borrower’s credit facilities are in non-performing status or would be categorised as nonperforming without the concessions.
A borrower’s existing exposures are categorised as exposures that have already evidenced difficulty in the borrower’s ability to repay in accordance with the bank’s internal credit rating system.
The bank finance would be only for acquisition of shares of existing companies providing infrastructure facilities. Further, acquisition of such shares should be in respect of companies where the existing foreign promoters (and/ or domestic joint promoters) voluntarily propose to disinvest their majority shares in compliance with SEBI guidelines, where applicable.
The companies to which loans are extended should, inter alia, have a satisfactory net worth.
The company financed and the promoters/ directors of such companies should not be a defaulter to banks/ FIs.
In order to ensure that the borrower has a substantial stake in the infrastructure company, bank finance should be restricted to 50% (fifty per cent) of the finance required for acquiring the promoter's stake in the company being acquired.
Finance extended should be against the security of the assets of the borrowing company or the assets of the company acquired and not against the shares of that company or the company being acquired. The shares of the borrower company / company being acquired may be accepted as additional security and not as primary security. The security charged to the banks should be marketable.
Banks should ensure maintenance of stipulated margins at all times.
The tenor of the bank loans may not be longer than seven years. However, the Boards of banks can make an exception in specific cases, where necessary, for financial viability of the project
This financing would be subject to compliance with the statutory requirements under Section 19(2) of the Banking Regulation Act, 1949.
The banks financing acquisition of equity shares by promoters should be within the regulatory ceiling of 40% (forty per cent) of their net worth as on March 31 of the previous year for the aggregate exposure of the banks to the capital markets in all forms (both fund based and non-fund based).
The proposal for bank finance should have the approval of the board of the bank.
This update has been contributed by Aastha (Partner) and Arhat Chhabra (Associate).
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