Blanket 5% infra provisions to hurt both lenders and project viability: Banks to RBI
infrastructure projects would hurt both the financiers and viability of the proposed development initiatives, seeking about a dozen such amendments to a draft Mint Road circular that seeks to de-risk bank exposure to long-gestation assets.
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Individual banks and the Indian Banks’ Association (IBA) have also urged the Reserve Bank of India (RBI) not to implement the new norms retrospectively since they would find it very difficult to change the negotiated terms in old loan agreements, banking industry sources told ET.
Bankers have said the norms be subsumed within new provisioning rules that will require lenders to pre-empt assessment on potential losses. “RBI is also in the process of finalising the expected credit loss (ECL) based provisioning guidelines,” said a senior bank executive. «So, there is a suggestion that these infrastructure norms be subsumed into those.”
In the draft guidelines published early last month, the RBI asked all regulated entities to provide for 5% of the infrastructure loan amount when a project is in the construction phase, progressively reducing that buffer to 2.5% when a project is operational and further to 1% after the project has adequate cash flow to repay current obligations and its long-term debt declines by at least 20% from the time of commencing commercial
