Clarity on bank lending to InvITs

Banks are generally permitted to lend to those InvITs where none of the underlying SPVs, which have existing bank loans, is facing ‘financial difficulty’. In view of banks and stakeholders seeking clarification on the provision of credit facilities to Infrastructure Investment Trusts (InvITs), RBI on October 15, 2019, clarified that the banks are permitted to lend these units subject to the following conditions.
Banks shall put in place a Board approved policy on exposures to InvITs which lays down an internal limit on such investments within the overall exposure limits in respect of the real estate sector and infrastructure sector. The Board approved policy shall inter alia cover the appraisal mechanism, sanctioning conditions, internal limits, monitoring mechanism, etc. The credit assessment shall also assume critical parameters like sufficiency of cash flows at InvIT level to ensure timely debt servicing. The performance of the underlying SPVs shall be monitored on an ongoing basis as the ability of the InvITs to meet their debt obligation will largely depend on the performance of these SPVs. As InvITs are trusts, banks should keep in mind the legal provisions in respect of these entities especially those regarding enforcement of security.
Acquiring shares of other companies:
The contribution towards the equity capital of a company should come from their own resources and banks are normally not permitted to grant advances to take up shares of other companies. However, RBI under certain circumstances permitted the lender as an exception to the above policy for financing the acquisition of the promoters’ shares in an existing company, which is engaged in implementing or operating an infrastructure project in India subject to certain conditions. Bank finance is restricted to maximum 50% of the finance required for acquiring the promoter’s stake in the company being acquired. The assets offered as security for the finance shall not be against the shares of that company or the company being acquired. However, 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. This financing for acquisition of equity shares would be subject to compliance with the statutory requirements under Section 19(2) of the Banking Regulation Act, 1949. The proposal for such bank finance should have the approval of the Board.