Infra Push: RBI Allows Banks To Recast Existing Project Loans – Business Line – 16-Dec-2014
December 25, 2014 - Uncategorized
To give a fillip to the infrastructure and core sectors, the Reserve Bank of India has allowed banks to to be flexible in lending to existing projects, in line with cash flows available for debt refinancing. This facility will also be available for non-performing loans.
Until now, flexible structuring of project loans with the option of periodic refinancing was available only to new loans, for projects sanctioned after July 15, 2014. For new loans, the RBI had not prescribed any ceiling or floor on the repayment period.
The RBI’s move will benefit infrastructure and core sector companies that have projects worth a few lakh crore rupees as banks will now be in a position to offer loans for an extended period. For example, a bank can loan money for 25 years, with an option of rewriting the terms of the loan or transferring it to another bank or financial institution after five years.
The RBI, however, said that only term loans to projects in which the aggregate exposure of all institutional lenders exceeds ₹500 crore will qualify for such flexible structuring and refinancing.
Banks had earlier written to the RBI seeking relaxation. For example, State Bank of India, which had an exposure of ₹92,919 crore to the power sector as of June, is concerned that the recent order on coal block de-allocation and closure of 26 mines will impact the power and metals industry.
The infrastructure sector includes sub-sectors such as transport, energy, water and sanitation, communication, and social and commercial infrastructure. The core sector includes coal, crude oil, natural gas, petroleum refinery products, fertilisers, steel, cement and electricity.
According to Nirmal Gangwal, MD, Brescon Corporate Advisors, infrastructure and core sector projects, which were taken up in the boom period after 2004, had a repayment tenure of 10-15 years as banks had asset-liability mismatch issues.
However, in the last few years with the economic downturn, these projects were not able to generate enough profits to service loans and needed an extended repayment tenure.
“The flexibility to structure existing loans with the option to periodically refinance will help both banks and infrastructure and core project developers,” Gangwal said.
The flexibility in structuring existing long-term project loans stems from recommendations by a government-appointed panel on infrastructure financing in the power sector, headed by SB Nayar, Chairman and Managing Director, IIFCL.