Finance Ministry permits state-owned NBFCs to issue letter of comfort

Modifying its earlier order, the finance ministry has permitted state-owned NBFCs to issue 'Letter of Comfort (LOC)' to banks for for fund tie-up for infra projects.

Earlier in March, the finance ministry had asked other ministries and departments not to issue 'Letter of Comfort' to any hired entity for undertaking projects on their behalf, as part of efforts to improve transparency in fiscal management.

"In view of the foregoing and considering that the CPSE-NBFCs are important players in the infrastructure sector, it has been decided that CPSE NBFCs may issue LOCs," an office memorandum issued by the finance ministry dated June 10 said.

The memorandum posted on the the finance ministry website on Monday laid down certain conditions which include that lender should be a NBFC (Non-Banking Finance Company) registered with RBI.

NBFCs should be involved in infrastructure sector and LOCs should be provided by banks only for opening letter of credit for supply of goods and services by foreign suppliers, it said.

Under no circustances the liability under this LOC should devolve on government of India, it added.

The memorandum was issued with the approval of the finance secretary and secretary expenditure.