Indian companies looking for cheaper dollar loans to fund infrastructure projects abroad will have to wait more. The Finance Ministry is in talks with the RBI to offer $5 billion from its reserve to finance such projects at rates cheaper than currently quoted in the foreign markets.
The ministry had earlier announced the setting up of Special Purpose Vehicles (SPV). Finance Ministry has proposed that the Reserve Bank should subscribe to bonds and securities floated by the SPV. These securities will carry a government guarantee.
The RBI prefers the refinancing of forex loans, which the SPV will raise on its own rather than invest in its bonds and securities.
The Finance Ministry says that this will unnecessarily push up the cost of transaction for corporates. Thereby eroding the benefit of using foreign exchange for loans.
The Finance Ministry maintains that there is no standoff with the regulator and the modalities will be thrashed out within a month. However, to make forex loans competitive and enable the SPV to click with corporate houses, cost of credit has to be kept low.
The two cities on radar for the location of SPVs are London and Singapore. Finance Ministry says that regulatory regimes are strong in both these cities. Although, even once the final policy contours are known it will take more time for the SPV to actually get off the ground.
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