The Reserve Bank of India (RBI) on Monday allowed banks to refinance existing infrastructure projects under the 5/25 model, provided commercial operations have begun and the total exposure is over Rs 500 crore. While the new norms will allow banks to refinance many loans, several projects that are stuck due to clearances will be out of the ambit of such refinancing.
In July, the RBI had allowed flexibility in structuring project loans only to new loans to infrastructure and core industries plans. The latest RBI move comes after banks demanded flexibility in structuring their existing long-term project loans.
IDBI Bank executive director RK Bansal said: “The move to allow existing projects will ease a lot of burden. Moreover, the request of bankers to scrap the 25% minimum takeout norm has been heeded, which would make refinance easier in these projects.”
The RBI said in a notification that banks may fix a fresh loan amortisation schedule for the existing project loans once during the lifetime of the project, after the date of commencement of commercial operations (DCCO), without this being treated as restructuring. In the 5/25 model, banks can extend loans to infrastructure projects for up to 25 years, with the option of refinancing it every five years by the existing bank or a fresh lender. RBI said that refinance may be taken up by the same lender or a set of new lenders, or combination of both, or by issue of corporate bond, as refinancing debt facility.
Bankers had sought removal of the 25% minimum takeout rule, saying the requirement of a certain percentage of lenders to be new defeated the purpose of the scheme.
SBI chairman Arundhati Bhattacharya had earlier told a news channel that if 25% of the lenders were required to be new, fewer projects will be eligible for refinancing, as in India, most funding has been done by commercial banks.
“Also, commercial banks are not very large in size and, as a result, their per-bank appetite is low. Therefore, for each of these projects, you have anything between 15 and 28 banks,” she said, adding that with so many banks already involved, it would be difficult to find new lenders.
The regulator has mandated that only loans where the minimum aggregate exposure of the lenders is more than Rs 500 crore can be refinanced under 5/25. It also clarified that that banks may also provide flexible structuring of loans to existing projects that are classified as NPAs.
However, refinancing of such an asset would be classified as restructuring and the asset would still be considered a NPA.