MUMBAI: The Reserve Bank of India (RBI) on Friday said lenders should maintain a provision of 5% for loans extended to under-construction projects, according to draft guidelines posted on the central bank’s website. The provisions can be made gradually in phases till FY27.
Once the project enters the operational phase, the provisions can be reduced to 2.5% of the funded loans. It can be further reduced to 1% of the funded outstanding provided that the project has – i) posted positive net operating cash flow that is sufficient to cover current repayment obligation to all lenders; and, ii) total long-term debt of the project with the lenders has declined by at least 20% from the outstanding at the time of achieving date of commencement of commercial operations (DCCO).
Lenders were earlier reportedly directed to maintain 0.4% provisions for project loans which were standard.
Further, for projects financed under lenders’ consortium arrangements, where the aggregate exposure of the participant lenders to the project is up to `1,500 crore, no individual lender should have an exposure less than 10% of the aggregate exposure, the guidelines said.
For projects where aggregate exposure of lenders is more than `1,500 crore, this individual exposure floor shall be 5% or `150 crore, whichever is higher, it added.
Notwithstanding this, after the date of commencement of operations, lenders may acquire from or sell exposures to other lenders in the multiple banking/consortium arrangements, RBI said.
“It is expected that the lenders monitor the build-up of stress in a project on an ongoing basis and initiate a resolution plan well in advance,” the central bank said, adding that occurrence of an adverse credit event during the construction phase shall trigger a collective resolution according to terms of RBI’s stressed assets resolution norms. RBI has sought public feedback on the draft circular by June 15.
Source: The Financial Express