RBI relaxes norms for financing of project loans
In the final norms, the RBI has reduced the standard asset provisioning requirement to 1 per cent for projects that are under construction. In the draft guidelines, issued in May last year, the RBI had asked lenders to maintain a general provision of 5 per cent of the funded outstanding on exposure to projects under implementation at various stages.
Project finance refers to the method of funding a project in which the revenues to be generated by the funded project serve as the primary security for the loan, and also as a source of repayment.
'Rationalisation of standard asset provisioning requirement to 1 per cent for projects under construction, which shall gradually increase for each quarter of Date of Commencement of Commercial Operations (DCCO) deferment,' the final norms said.
DCCO is the date by which the project is expected to be put to commercial use and completion certificate/provisional completion certificate is issued to the concessionaire.
The RBI said that requirements for under-construction commercial real estate (CRE) exposures will be, however, slightly higher at 1.25 per cent.
For accounts that have availed of DCCO deferment, lenders will maintain an additional specific provision of 0.375 per cent for infrastructure project loans and 0.5625 per cent for non-infrastructure project loans (including CRE and CRE-Residential Housing), for each quarter of deferment, over and above the applicable standard asset provision.
For the applicability of the new norms, the RBI said that projects will be divided into three phases – design phase, construction phase and operational phase.
The RBI said that for all projects financed by a lender, it should ensure that financial closure has been achieved and original DCCO is clearly spelt out and documented prior to disbursement of funds; the project specific disbursement schedule vis-à-vis stage of completion of the project is included in the loan agreement; and the post-DCCO repayment schedule has been realistically designed to factor in the initial cash flows.
In under-construction projects where the aggregate exposure of the lenders is up to Rs 1,500 crore, the RBI said that no individual lender will have an exposure which is less than 10 per cent of the aggregate exposure. For projects where aggregate exposure of all lenders is more than Rs 1,500 crore, the exposure floor for an individual lender shall be 5 per cent or Rs 150 crore, whichever is higher.
A lender should ensure availability of sufficient land/right of way for all projects before disbursement of funds.
As per the new norms, a lender will monitor the performance of the project and any build-up of stress on an ongoing basis and will be expected to initiate a resolution plan well in advance.
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