CPSE NBFCs may issue LOCs to banks: Finance Ministry

The memorandum was issued with the approval of the finance secretary

CPSE NBFCs may issue LOCs to banks: Finance Ministry
Union Finance Minister of India Smt. Nirmala Sitharaman

New Delhi: Finance Ministry of India permitted state-owned NBFCs to issue a 'Letter of Comfort (LOC)' to banks for fund tie-up for infra projects. However, the ministry modifies its earlier order that was issued in March, mentioning not to issue 'LOC' to any hired entity for undertaking projects on their behalf.

According to the office memorandum issued by the finance ministry dated June 10 mentioned, "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", The memorandum was issued with the approval of the finance secretary. 

Moreover, the Ministry points out the CPSE-NBFCs are one of the major parts of the infrastructure sector. NBFCs should be involved in the infrastructure sector and LOCs should be provided by banks only for opening letters of credit for the supply of goods and services by foreign suppliers, it said. 

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