SBI jumps the gun, sets out to make infra loans costlier
State Bank of India (SBI), the country's largest lender, has kicked off the new project funding regime with a loan clause that enables it to transfer to the borrower any increase in cost resulting from implementation of proposed tighter provisioning regulations, even as the industry is lobbying against the move, people with knowledge of the matter told ET.
A new clause in the lender's loan document explicitly states that for any regulatory change that requires SBI to make higher provisions, the bank will pass on the cost to the borrower. This would give the bank the right to raise rates even after sanctioning a loan at a particular interest rate.
Early May, the Reserve Bank of India (RBI) issued comprehensive draft guidelines on financing and accounting of project loans. It proposed that banks set aside 5% as provisions on infrastructure and commercial real estate that are under construction, and this provision will come down gradually after the project is operational.
SBI Makes Explicit Mention of Key Clause
Currently, banks provide 1% for commercial real estate loans, 0.75% for residential home projects, and 0.40% for all other loans, including project finance.
Banks, including SBI, and companies have approached the RBI to relax the proposed norms, which they say will dent corporate appetite to bid for infrastructure projects.
SBI, the third largest bank in terms of market capitalisation, will need to make an additional provision of Rs 9,000 crore if the RBI does not relax the draft norms on project finance,
