RBI's latest norms may derail Modi govt's flagship economy driver

economictimes.indiatimes.com:

Reserve Bank of India will likely enforce a rule that could dampen the spirits of India’s capital expenditure momentum, a highlight of the Narendra Modi government’s tenure at the Centre.

RBI has issued draft guidelines asking lenders in India to increase their provisioning for infrastructure projects which are under construction and has asked them to ensure strict monitoring of any emerging stress.

In essence, provisioning entails lenders allocating a specific portion of their balance sheets as reserves to cover expected future losses.

However, banks and experts are now worried that these guidelines could affect the momentum India’s infrastructure projects have seen in recent years. This is because a higher provisioning rate could increase interest rates and negatively impact India's capital expenditure momentum.

Capex drive has emerged as one of the biggest talking points of the Modi government’s second tenure, with the NDA government investing heavily in capital projects that are seen to have positive multiplier effects on the economy. Finance Minister Nirmala Sitharaman allocated Rs 11.11 lakh crore towards capital expenditure for FY25, up 17 per cent from the revised capex estimate of Rs 9.5 lakh crore for FY24.

RBI’s draft norms will be implemented after lenders provide their feedback to the central bank by June 15.

India’s private sector revival under threat?

Banks are poised to advise the central bank against the sharp rise in provisions, contending that it could impede the momentum that has pushed