Latest News | RBI Proposes Tighter Project Finance Rules
Get latest articles and stories on Latest News at LatestLY. The Reserve Bank on Friday proposed tighter rules to govern lending to projects under implementation.
Mumbai, May 3 (PTI) The Reserve Bank on Friday proposed tighter rules to govern lending to projects under implementation.
The central bank's draft rules include a classification of the projects as per their phase and higher provisioning of up to 5 per cent during the construction phase, even if the asset is standard.
It can be noted that in the last credit cycle, project loans were seen to have led to a build-up of stress on bank books. The standard asset provisioning otherwise stands at 0.40 per cent.
Under the proposed norms, first announced in September 2023 and the details revealed on Friday, a bank has to set aside 5 per cent of the exposure during the construction phase, which goes down as the project becomes operational.
Once the project reaches the 'Operational phase', the provisions can be reduced to 2.5 per cent of the funded outstanding and then further down to 1 per cent if certain conditions are met.
These include the project having a positive net operating cash flow that is sufficient to cover current repayment obligation to all lenders, and the total long-term debt of the project with the lenders has declined by at least 20 per cent from the outstanding at the time of achieving Date of Commencement of Commercial Operations, it said.
The proposed guidelines also spell out details on stress resolution, specify the criteria for upgrading accounts, and invoke recognition.
It expects lenders to maintain project-specific data in an electronic and easily accessible format.
Lenders will update any change in the parameters of a project finance loan at the earliest but not later than 15 days from such change. The necessary system in this regard will be put in place within 3 months of the release of these directions, it said.
The public has been given time till June 15 to respond to the proposals.
(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)