RBI has eased asset classification infrastructure and project loan guidelines, which in turn will lower the amount of bad loans in the books of banks. Till now, a bank had to classify a project loan as a ‘sub-standard’ asset if commercial operations did not start within six months of the completion of the project, even if the company regularly serviced its loan. Similarly, in case of infrastructure loans, a bank had to classify it as substandard if commercial operations did not start within two years of the completion of the project even if it is being repaid.

RBI has increased the grace period for classifying them as standard assets provided the borrower continue to pay.

In case of infrastructure projects, RBI has increased the grace period to a total of four years if the reason for delay in starting production is because of arbitration proceeding or a court case and to three years if the delay is for reasons beyond the control of promoters. For project loans, RBI has extended the grace period to one year from six months from the original date of commencement of commercial operations (DCCO).

RBI has clarified that this dispensation will not be applicable for commercial real estate, c o n s u m e r loans, capital market exposure and personal loans.

The central bank has also increased the provisioning requirement on standard assets if banks choose to extend the grace period in case of project and infrastructure loans. If the grace period is six months from DCCO, the bank will have to provide standard provision of 0.40%, but if it gives a grace period of one year, the standard provision would be 1%. In case of infrastructure loans, if the grace period is two years, standard provision would be 0.40% and beyond two years is 1%.

Over the last two years, several banks had asked RBI to ease rules for project and infrastructure loans on grounds that they had to classify several accounts as sub-standard because the project could not start commercial production within two years (for infrastructure projects) and six months (for non infrastructure) or two years from the originally agreed date of completion of project because of external reason which were beyond their control.

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September 2021