RBI relaxes lending norms for core projects

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Friday , May 09, 2008 at 2141 hrs To encourage banks to earmark more funds to infrastructure sector projects at competitive rates, the Reserve Bank of India on Thursday relaxed the lending norms for such projects.

In a notification RBI said bank loans to infrastructure projects would be treated as sub-standard only if commercial production is delayed by more than two years over the date originally envisaged, instead of the present norm of one year.

“If the date of commercial production extends beyond a period of two years (as against the current norm of one year) after the completion of the project, as originally envisaged, the account should be treated as sub-standard”, the RBI said in a notification.

The central bank’s decision follows RBI Governor YV Reddy’s announcement in the annual credit policy unveiled on April 29, 2008.

RBI, the notification said, has decided to modify the asset classification norms in view of the representations pertaining “to delays in completion of the projects for legal and other extraneous reasons.” Under the asset classification norms, the banks are required to make a minimum provision of 10% for sub-standard assets. The provisioning requirement goes up to 20 per cent in case of unsecured assets.