Infrastructure Lenders Seek Easier Rules From RBI
RBI can use the data provided by banks, NBFCs and rating agencies and publish it publicly and leave it to the boards, auditors and the public to be guided by it, sources said.
A total of nine leading infrastructure financiers are joining forces to send their recommendations to the Reserve Bank of India to reconsider its proposed tightening of project financing norms, sources told NDTV Profit.
This has come as they believe that the proposed stringent draft guidelines could stall India’s infrastructure growth plans and increase costs for developers and consumers alike.
The forum for infrastructure lenders, including India Infrastructure Finance Limited, Indian Renewable Energy Development Agency, Housing and Urban Development Finance Corporation, National Bank for Financing Infrastructure and Development, Aseem Infrastructure Finance, Aditya Birla Finance, Tata Capital, India Infradebt Limited and Kotak Infrastructure Debt Fund Limited, has prepared a detailed submission to the RBI.
NDTV Profit has reviewed the list of recommendations.
Instead of the proposed 5% provisioning on all existing and fresh project finance loans, infrastructure financiers recommend using sector-wise probability of default and loss given default estimates published by rating agencies to determine provisioning, rather than a one-size-fits-all approach.
The data can help in provisioning project finance loans in a transparent, data-driven and dynamic manner, the recommendations said.
RBI can use the data provided by banks, NBFCs and rating agencies and publish it publicly and leave it to the boards, auditors and the public to be guided by it, a person with direct knowledge of the matter said.
The group has called for aligning provisioning norms with international best practices such as IFRS-based expected credit loss models to avoid over-provisioning and its knock-on effects on project costs and viability.
Queries sent to the RBI, IREDA and NaBFID seeking a response on the matter remained unanswered at the time of filing this story.
The lenders have also suggested that once a project reaches operational status and demonstrates stable cash flows, the extra provisioning should be removed to reflect reduced risk.
Further, infra-focused lenders have also urged the RBI to hold broader consultations involving all key stakeholders, including sector regulators, rating agencies and both domestic and international investors.
The group has requested wider stakeholder consultations on this matter involving infrastructure lenders, the National Highway Authority of India, the Central Electricity Regulatory Commission, the Airports Economic Regulatory Authority of India, the Telecom Regulatory Authority of India, the Solar Energy Corporation of India, rating agencies, and top global and domestic infrastructure developers and investors.
These nine lenders contribute about 55% of Indian infrastructure lending of the overall banking credit, the person quoted above said.
Banks extended loans worth Rs 13.22 lakh crore to infrastructure sector borrowers as of March 31, according to the last available RBI data.
Overall non-food credit growth was up by 12% year-on-year in March to Rs 177.86 lakh crore, compared with 16.3% a year ago.
They have argued that the proposed regulations--which mandate significantly higher provisioning for infrastructure loans--could have far-reaching negative consequences such as slower infrastructure growth, higher tariffs for consumers, counterproductive provisions, regulatory conflicts and undermining the deepening of the bond market.
On May 3, 2024, the central bank had proposed that lenders be required to increase provisions to 5% of the loan amount disbursed for projects in the construction phase. So far, this requirement was set at 0.4%.
When the project becomes operational, this can be reduced to 2.5% and then lowered to 1% once the project reaches net positive cash flow and repays 20% of the dues, the RBI had said in its draft circular.
This circular had caused a stir in the industry, with banks and non-banking financial companies urging the RBI to ease these norms.
Following this, Governor Sanjay Malhotra had extended the timeframe for the implementation of the liquidity coverage ratio and the new project finance norms in the February monetary policy meeting, as the earlier deadline did not provide enough time.
Last month, the RBI also eased liquidity coverage norms for banks, compared to what the draft guidelines had recommended.
