Mumbai: The Reserve Bank on Friday proposed stricter rules for lending to projects under implementation.
The central bank's draft rules include classification of projects according to their stage and a higher provision of up to 5 per cent during the construction phase, irrespective of the asset standard.
It may be noted that in the last credit cycle, there was increased stress on bank books due to project loans. The standard asset provision is otherwise 0.40 per cent.
Under the proposed norms, first announced in September 2023 and details revealed on Friday, a bank will have to set aside 5 per cent of the exposure during the construction phase, which reduces as the project becomes operational.
Once the project reaches the 'operational stage', the provisions can be reduced to 2.5 per cent of the outstanding financed and then to 1 per cent if certain conditions are met.
These include the project having positive net operating cash flow that is sufficient to cover the current repayment obligation of all lenders, and the project's total long-term debt with lenders being reduced by at least 20 per cent of what is outstanding at that time. To achieve a date for commencement of commercial operations, it said.
The proposed guidelines also spell out details on stress resolution, specify criteria for upgrading accounts and call for accreditation.
It requires lenders to maintain project-specific data in an electronic and easily accessible format.
The Lender will update any change in the parameters of the Project Finance Loan as soon as possible, but not later than 15 days of such change. It states that necessary systems in this regard will be put in place within 3 months of the issue of these instructions.
The public has been given time till June 15 to respond to the proposals.
The central bank's draft rules include classification of projects according to their stage and a higher provision of up to 5 per cent during the construction phase, irrespective of the asset standard.
It may be noted that in the last credit cycle, there was increased stress on bank books due to project loans. The standard asset provision is otherwise 0.40 per cent.
Under the proposed norms, first announced in September 2023 and details revealed on Friday, a bank will have to set aside 5 per cent of the exposure during the construction phase, which reduces as the project becomes operational.
Once the project reaches the 'operational stage', the provisions can be reduced to 2.5 per cent of the outstanding financed and then to 1 per cent if certain conditions are met.
These include the project having positive net operating cash flow that is sufficient to cover the current repayment obligation of all lenders, and the project's total long-term debt with lenders being reduced by at least 20 per cent of what is outstanding at that time. To achieve a date for commencement of commercial operations, it said.
The proposed guidelines also spell out details on stress resolution, specify criteria for upgrading accounts and call for accreditation.
It requires lenders to maintain project-specific data in an electronic and easily accessible format.
The Lender will update any change in the parameters of the Project Finance Loan as soon as possible, but not later than 15 days of such change. It states that necessary systems in this regard will be put in place within 3 months of the issue of these instructions.
The public has been given time till June 15 to respond to the proposals.
