The Reserve Bank of India (RBI) on June 19 released the final directions on project finance norms, asking lenders to maintain general provision of 1.25 percent on Commercial Real Estate (CRE), and 1 percent each on Commercial Real Estate-Residential Housing (CRE-RH) and other portfolio during the construction phase.
Banks shall have to maintain 1 percent general provisions on commercial real estate projects during the operational phase after commencement of repayment of interest and principal, and 0.75 percent on residential housing (CRE-RH), while 0.40 percent on all other projects, the regulator said.
The provisioning was sharply lower than what was proposed in the draft norms, which proposed that banks set aside a provision of 5 percent of the loan amount when the project is in the construction phase, reduced to 2.5 percent once it becomes operational and then down to 1 percent after the project starts generating cash sufficient to cover lenders’ repayment.
The final norms will come into force with effect from October 1, 2025, RBI said. In February, RBI Governor Sanjay Malhotra had said that project financing norms may get deferred by a year, and shall not be implemented before March 31, 2026.
As per the final regulations, if the date of commencement of commercial operations (DCCO) deferment classified as standard, lenders have to additional specific provisions of 0.375 percent for infrastructure project loans and 0.5625 percent for non-infrastructure project loans (including CRE and CRE-RH), for each quarter of deferment.
The central bank said banks have to monitor the performance of the project and any build up of stress on an ongoing basis during construction phase and shall be expected to initiate a resolution plan well in advance.
Any such credit event shall be reported to the Central Repository of Information on Large Credit (CRILC) by the lender in the prescribed weekly as well as the CRILCMain report, RBI said in a report. Bank shall have to undertake a prima facie review of the debtor account within 30 days from the date of such credit event (Review Period), RBI added.
The RBI said that the upgradation of NPAs can only happen after the account performs satisfactorily post actual DCCO. The project finance account downgraded to NPA can be upgraded after successful implementation of the resolution plan, provided no further request for DCCO deferment is received, RBI added.
Before disbursement of funds, a lender shall have to ensure there is sufficient land of 50% for infrastructure projects under PPP model, and 75% for all other projects.
This regime for resolution of exposure to stressed assets has been harmonized across regulated entities.
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