RBI Project Financing Norms: Provisioning Row Explained
Why in the news
RBI’s draft norms for project finance drew pushback from lenders, and the Governor confirmed the feedback is being weighed before the final rules.
Key facts
- Draft framework circulated in May 2023 to set a uniform prudential approach for long-term project loans.
- Covers revised rules for changing the date of commencement of commercial operations (DCCO) and assessment of project risks.
- Lenders to hold 5% of standard assets as provisions during construction.
Provisioning: draft versus banks’ ask
| Stage | RBI draft | Banks’ proposal |
|---|---|---|
| Construction | 5% | 1% upfront, rising to 3% if delayed |
| After completion | 2.5% | Graded by progress and delay |
| Steady cash flow projects | 1% | – |
Industry concerns
- 5% provisioning would hurt profits and project viability.
- The six-month moratorium is unrealistic; repayment schedules differ, so flexibility is sought.
- Draft requires positive NPV; banks want no credit event for temporary NPV dips and the right to reverse provisions when it recovers.
Way forward
- Governor Sanjay Malhotra promised phased implementation of big changes.
Exam angle
- Full form: DCCO.
- Draft provision: 5% during construction.