Draft project finance norms: FinMin to take up infra lenders’ woes with RBI
There are pleas for a rethink on the 5% provisioning on existing, new project finance loans
The Department of Economic A airs (DEA) in the Finance Ministry is set to gather feedback from banks and other infrastructure lenders on the draft project finance guidelines issued by the Reserve Bank of India (RBI).
Post this consultation exercise, senior DEA ocials are likely to meet RBI at Mumbai to convey the government’s thinking on the same, sources said. The central bank had fixed June 15 as the last date for submission of stakeholder comments on the draft guidelines.
PLEA TO GOVT
The DEA — the main department in the Finance Ministry overseeing infrastructure development — is likely to obtain feedback from bank representatives early this week. The RBI is not asking banks to increase the provisioning from the current 0.4 per cent to 5 per cent at one go.
The provisioning has to increase gradually by 1.5 per cent every year, to reach 5 per cent by March 2027. Already, some infrastructure lenders have represented to the government that the proposal requiring a general provision of 5 per cent of the outstanding loans in all existing as well as fresh project loans needed a rethink.
They are understood to have urged the government not to insist on the additional provision in the final guidelines. Banks are apprehensive that the higher provisioning for infrastructure projects recommended by the RBI would increase project costs, turn several projects unviable and have ripple effects on other sectors.
CALL FOR DISCRETION
Some suggest that good projects that meet all timelines and other parameters including costs should not be painted with the same brush as the not-so-promising ones.
“The projects that are performing well should not be made to do higher provisioning because the government is worried about the not-sopromising ones. Discretion should be used based on performance,” a source said. The RBI’s proposal of higher provisioning is being seen as a pre-emptive action — a sort of counter cyclical bu er — to prevent risks from building-up in bank balance sheets.
Asked if additional provisioning required by the RBI draft guidelines would (if implemented) a ect the profits of the bank this year, Atul Kumar Goel, MD and CEO of Punjab National Bank replied in the negative.
“No, I don’t think so. It is a draft guideline from the regulator. We will have to wait for the final guidelines and not come to conclusion before that. I do not foresee any challenge. I can assure to everybody whatever will be the final guidelines, PNB will be in a position to easily provide whatever the requirement”, Goel told businessline here.
Goel said the RBI’s draft guidelines are well intended. “Now question that is debatable is what should be the percentage of provision That we will discuss in the Indian Banks Association,” he added.