In a development that should come as a major boost for Indian banks that operate overseas, the Indian central bank RBI eased restrictions with regards to refinancing certain loans. According to the policies that are going to go into effect in December this year, foreign branches of Indian banks will be able to refinance external commercial borrowings or ECBs that are tied to a handful of entities. The refinancing is only restricting to Indian companies, which are “AAA” rated, and other public sector companies classified as “Maharatna” and “Navratna.”
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In this regard, it should be noted that the Indian public sector companies, that are going to be within the permitted list are going to be will total around 30. It is not a particularly large number for such large banks in India, but at the same time, these are companies that are regarded as “safe” by credit agencies and also the government regulatory bodies. In addition to that, it should also be noted that the companies in question are intimately linked to the Indian economy, and hence, refinancing should have an overall positive effect.
It is now a well-known fact that Indian banks have been in a bit of a tailspin for quite some time, and bad debts in the books of many banks have skyrocketed at an alarming rate. Hence, such a move provides the banks with the opportunity to increase their debt assets through highly reliable entities, and refinancing also allows some of the important entities in India with ready credit. It is a move that should work, at least in theory. However, it remains to be seen how it all pans out in a year or so.
