SBI may increase infra loan rates if RBI's draft norms get implemented: Dinesh Khara

SBI

State Bank of India’s chairman Dinesh Kumar Khara on May 9 said that the lender may reprice infra loans if the draft norms of the Reserve Bank of India (RBI) on infrastructure project financing get implemented.

“Incremental provisions will not be significant. We will be able to absorb and if this becomes a reality, we will be looking at repricing the loan,” Khara said during the post policy press conference.

On May 3, the RBI proposed that lenders should set aside higher provisions for all infrastructure projects that are under-construction and also asked the lenders to ensure strict monitoring of any emerging stress.

Khara further said that the bank has done some assessment and will be reaching out to RBI with their views.

State Bank of India have an infrastructure project finance book of around Rs 1.20 lakh crore, Khara said.

Also read: SBI Q4 net profit rises 24% to Rs 20,698 cr, declares Rs 13.70 dividend

What has the RBI proposed?

When a project is in the construction phase, the RBI proposed that lenders set aside a provision of five percent of the loan amount. This will be reduced to 2.5 percent once the project is operational.

The required provisions will further be cut to one percent once the project has adequate cash flow to repay current obligations.

The lenders are required to make the five percent provision in a phased manner: two percent in FY25, 3.5 percent in FY26, and five percent by FY27.

Currently, lenders are required to have a provision of 0.4 percent on project loans that are not overdue or stressed.

Also, banks should have clear visibility on the date on which a project is expected to begin commercial operations and increase provisions in case operations are delayed. Any delay over three years in the beginning of an infrastructure project should change the classification of the loan from standard to stressed.

Also read: Banks may see some impact on profits due to RBI’s draft norms for higher provisioning on infra lending, say experts

Q4 results
The State Bank of India reported 24 percent rise in net profit at Rs 20,698 crore for the quarter ended March 31, 2024, aided by strong loan demand. SBI reported net profit of Rs 16,695 crore in the year-ago period.

The profit surpassed estimates of Rs 13,400 crore by analysts.

The bank's asset quality improved in the March quarter. The gross non-performing asset (GNPA) of SBI came in at 2.24 percent as against 2.78 percent last year, while net NPA came in at 0.57 percent compared to 0.67 percent last year.