The Reserve Bank of India’s (RBI) draft project finance norms may have a limited impact on infrastructure-focussed non-bank lenders, CareEdge Ratings said in a report.
The rating agency said if the draft guidelines are implemented in the existing form, the tier-1 capital of infrastructure-focussed NBFCs are expected to be reduced by up to 120 basis points (bps). “Considering the current healthy capitalisation position of NBFC-IFCs, the reduction in tier-1 is not expected to have any material impact on future disbursements or approval processes,” the report said.
Further, the rating agency sees no impact on the return on equity or reported net worth of these lenders, as the difference in provisioning requirements between the RBI rules and IndAS accounting standards must be adjusted through the impairment reserves and will not be routed through net profits or net losses of the entity.
On May 3, the central bank released a draft framework for lenders who undertake project finance. Under these guidelines, RBI has increased the provisioning requirement on standard assets. It has proposed categorising projects into design, construction and implementation phases.
During the construction phase of a project, the lender is required to maintain a provision of 5% on all existing and new exposures. This will be implemented in a phased manner with 2% by March 31, 2025, 3.5% by March 31, 2026, and 5% by March 31, 2027, for all existing and new exposures.
In the draft RBI guideline, the lenders are expected to monitor the projects in terms of delays, like fixing the date on which a project is expected to begin commercial operations and increasing provisions in case operations are delayed. RBI also expects the lenders to maintain project-specific data in an electronic and easily accessible format. Lenders must put a necessary system in place within three months of the release of these directions.