Repayment rules for core

BS REPORTER

Mumbai, 15 December

As a step to ease the pressure on stressed assets, the Reserve Bank of India has allowed lenders to restructure existing loans above 500 crore to infrastructure and core industries’ projects.

Banks and financial institutions will have an option to periodically refinance such loans. Bankers said the revised norms will provide relief to completed projects which have started commercial operations in the said sectors. Many of these were finding it difficult to repay due to shortfall in cash flows and cost over runs.

This leeway is expected to help ensure the long- term viability of existing projects by aligning the debt repayments with the cash flows generated during their economic life. It is a step that will reduce potential stress, said Arundhati Bhattacharya, chairman of State Bank of India.

Vibha Batra, co- head of financial sector ratings at ICRA, said the new norms would “ help to reduce the addition to the existing portfolio of stressed assets”.

According to Union finance ministry data, the stressed loan books of commercial banks were 12.57 per cent of the total of loans as of end- September. Nonperforming assets ( NPAs) had a share of 5.32 per cent and restructured assets were 7.25 per cent.

While giving the flexibility, the banking regulator has attached some riders, to ensure the exercise happens within a framework of prudential norms.

Only term loans where the aggregate exposure of all institutional lenders exceeds ₹ 500 crore will be eligible for such flexible structuring and refinance. Banks can fix a fresh loan repayment (amortization) schedule for existing project loans once during their lifetime. This could be done only after the date of commencement of commercial operations, based on the reassessment of project cash flows.

The exercise will not be treated as a ‘restructuring’, provided it is a standard loan as on the date of change of the repayment schedule. The Net Present Value of the loan should remain the same before and after the change in repayment schedule, RBI said.

BK Batra, deputy managing director, IDBI Bank, said the new norms were positive in the sense that they help to reduce the debt servicing burden on companies. Banks will save on provisioning for restructured loans.

Banks may refinance the project term loan periodically ( for example, five or seven years) after the project has commenced commercial operations. The repayments at the end of each refinancing period could be structured as a bullet repayment, with the intent specified upfront, RBI added.

Refinancing can be done by existing lenders, a new set of lenders or a combination of both or by issuing corporate bonds. Such refinancing can be repeated till the end of the repayment schedule.

Bank can so address existing standard restructured assets; the letters label won’t change. Similarly, existing non- performing loans can be restructured under the new norms but these would continue to carry the “NPA tag”, and refinancing can be done only after it becomes a standard asset, said RBI.

IN BLACK & WHITE

RBI allows lenders to restructure existing loans above ₹ 500 crore to infrastructure and core industries’ projects |Banks and financial institutions will have an option to periodically refinance such loans |Bankers say revised norms will provide relief to completed projects which have started commercial operations in the said sectors |Leeway expected to help ensure long- term viability of existing projects |While giving the flexibility, the banking regulator has attached some riders, to ensure the exercise happens within a framework of prudential norms.

 

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