Amending its earlier order, the Ministry of Finance authorized state-owned NBFCs to issue a “Letter of Comfort (LOC)” to banks for the tie-up of funds for infrastructure projects.
Earlier in March, the Ministry of Finance had asked other ministries and departments not to issue a “comfort letter” to an entity contracted to undertake projects on their behalf, as part of efforts to improve the transparency of the budget management.
“In view of the above and considering that CPSE-NBFCs are significant players in the infrastructure sector, it has been decided that CPSE NBFCs may issue LOCs,” says a memorandum from the Ministry of Finance dated June 10.
The memorandum published on the Ministry of Finance website on Monday sets out certain conditions, including that the lender must be an NBFC (non-bank financial company) registered with the RBI.
NBFCs should be involved in the infrastructure sector and lines of credit should be provided by banks only for the opening of a letter of credit for the supply of goods and services by foreign suppliers, he said. declared.
Under no circumstances should liability under this LOC lie with the Government of India, he added.
The memorandum was issued with the approval of the Secretary for Finance and the Secretary’s Expenses.