India's central bank eases provisioning rules for infrastructure loans
India's central bank said on Thursday it would require lenders to set aside 1% of the value of loans for under-construction infrastructure projects to cover potential losses, easing its earlier draft proposal that envisaged provisioning rising up to 5%, following an appeal by lenders.
The requirement will come into effect on October 1.
Long delays in implementing projects and optimistic revenue projections have led to large loan defaults in India and made lenders wary of the infrastructure sector.
The Reserve Bank of India proposed in May last year that lenders should set aside 5% of the loan value for an infrastructure project being built to cover risks. However, lenders said that could dampen a recovery in project finance.
The RBI, under governor Sanjay Malhotra, has taken several steps to ease credit requirements to try to stimulate growth.
Since January, the central bank has partially reversed tighter rules for bank loans to small borrowers and non-bank lenders, eased rules for small-ticket gold loans, and begun unwinding curbs on non-bank financial companies and banks.
Under the new rules, lenders will also have to set aside 1.25% of the value of loans for under-construction commercial real estate projects.
The rules also limit extensions to project completion deadlines, or the date of starting commercial operations, to three years for infrastructure projects and two years for non-infrastructure projects.
Lenders have the flexibility to approve extensions within these limits based on commercial assessments, the RBI said.
Projects that have already secured financing will continue under the existing provisioning regime to ensure a smooth implementation, the RBI added.
A M Karthik, senior vice president and co-group head, financial sector ratings, at ICRA, said the new rules were likely to have a limited impact as provisioning levels are comparatively close to the new requirements, and they do not apply retrospectively.
(Reporting by Siddhi Nayak and Swati Bhat. Editing by Rachna Uppal and Mark Potter)
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