In a major initiative to kickstart stalled projects, the Reserve Bank of India (RBI) has decided to allow the banks to flexibly structure the existing loans to infrastructure and core industries projects with an option to periodically refinance these projects.
The RBI had earlier allowed flexible structuring of project loans only to new infrastructure loans. The relaxation, under the so-called 5:25 refinance scheme, enables banks to refinance a project after a period of say every 5 or 7 years with new set of norms on pricing depending upon the prevailing conditions, the RBI said in statement. The facility will be offered only to term loans in projects where the aggregate exposure of all institutional lenders exceeds Rs 500 crore, the RBI said.
Finance ministry figures show that 371 projects with investments of Rs 18,47,266 crore are stalled and pending for resolution with the Project Monitoring Group of the government. This has also led to a fall in new project investments in the country. State-owned banks which funded these projects predominantly are already saddled with Rs 2,43,043 crore of bad loans — which is 5.32 per cent of their advances.
Under the 5:25 scheme, banks can give loans to new infra projects for a 25-year period and refinance them every five years provided these projects do not become a non-performing asset.
In a circular to all commercial banks, the RBI said fresh amortisation for existing projects will be allowed once during lifetime of the project and will not be termed as refinancing on certain riders being met. Going by the guidelines, banks can determine the pricing at each stage of the project and such pricing should not be below the base rate, or minimum lending rate, of the bank.