RBI proposes floor for banks' loan
exposure for project finance
The Reserve Bank of India (RBI) on Friday proposed
to set a floor for banks' loan exposure for project finance for consortium
lending and mandated 5 per cent standard asset in the construction phase.
The central bank, in the draft guidelines on the
financing of project loans, said, In projects financed under consortium
arrangements, where the aggregate exposure of the participant lenders to the
project is up to Rs 1,500 crore, no individual lender shall have an exposure
which is less than 10 per cent of the aggregate exposure .
For projects where the aggregate exposure of lenders
is more than Rs 1,500 crore, this individual exposure floor shall be 5 per cent
or Rs 150 crore, whichever is higher, it said.
For all projects financed by the lenders, the draft
said, that banks must ensure that financial closure has been achieved and DCCO
[date of commencement of commercial operation] is clearly spelt out and
documented prior to disbursement of funds.
The lenders have to ensure that disbursal is
proportionate to the stages of completion of the project. In the case of PPP
projects, disbursement of funds should begin only after the declaration of the
appointed date of the project.
The regulator has identified three stages of the
project design, construction and operational phase. The operational phase is
the last phase which starts with the commencement of the commercial operation
of the project. The draft norms proposed a general provision of 5 per cent of
the funded outstanding to be maintained on all existing as well as fresh
exposures on a portfolio basis.
A phased approach has been proposed for the
provisioning of 5 per cent for standard assets during the construction phase.
It has been proposed 2 per cent with effect from March 31, 2025 (spread over
the four quarters of 2024-25), 3.50 per cent with effect from March 31, 2026
(spread over the four quarters of 2025-26), and 5.00 per cent with effect from
March 31, 2027 (spread over the four quarters of 2026-27).
Typically, banks have to make 1 per cent or less for
standard asset provisioning for most loans. The provisioning can be reduced to
2.5 per cent in the operational phase and further to 1 per cent of the funded
outstanding provided that the project has a positive net operating cash flow
that is sufficient to cover the current repayment obligation to all lenders,
and 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 DCCO.
For accounts that have availed DCCO deferment and
are classified as standard , and if the cumulative deferments are more than 2
years and 1 year for infrastructure and non-infrastructure projects,
respectively, lenders have been asked to maintain additional specific
provisions of 2.5 per cent over and above the applicable standard asset
provision.
This additional provision of 2.5 per cent shall be
reversed on commencement of commercial operation, the draft norms said.
Project finance accounts downgraded to the
non-performing asset (NPA) can be upgraded after 360 days from the end of the
review period, provided the review period has been successfully implemented,
and no further diminution in fair value of the asset has happened and no
further request for DCCO is made, it said.
Stakeholders can submit their comments on the draft
norms by June 15.
www.business-standard.com
dt. 04-05-2024