1. RBI may allow banks to use 5/25 norm for existing projects too

RBI may allow banks to use 5/25 norm for existing projects too

The RBI plans to allow banks to use the 5/25 norms for infra loans for existing projects; right now, these are applicable only to fresh projects.

By: | Mumbai | Updated: December 3, 2014 5:31 AM

The RBI plans to allow banks to use the 5/25 norms for infra loans for existing projects; right now, these are applicable only to fresh projects.

The rule allows banks to refinance a project every five years, on new terms, without the asset being classified as restructured.

The idea is to allow companies to repay loans, over a longer period, without too much stress. As such, the repayment tenure should be better aligned with the period when cash flows are generated by the asset.

On Tuesday, RBI governor Raghuram Rajan said there was substantial financial stress in some sectors and that the central bank has been taking a holistic view instead of a sector-by-sector approach keeping in mind the need for a financial restructuring while limiting the extent of forbearance.

In July, the central bank had said in a notification  that banks could give loans to new infra projects for a 25-year period and refinance them every every five years, provided these projects do not become NPAs. These loans would not be classified as a restructured asset — which attracts a higher provisioning — but would be categorised as standard.

Rajan on Tuesday said the RBI plans to extend the benefit of refinance of long-term loans to existing projects that have not turned sour. There is a move towards 5/25 restructuring for existing projects which are standard, he said.

This is expected to benefit banks as restructured projects will now become more viable. SBI chairman Arundhati Bhattacharya told a tv  channel: “This is because I really don’t understand why a project, if it is new, should be given the advantage of repaying over a longer period of time whereas the existing project should not be given the same facility — they should be on the same level platform.”

She added that it would be good for the banks as they would be able to refinance many loans where projects are working and cash flows are seen.

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