The Reserve Bank of India (RBI) is likely to issue final guidelines in two to three months on provisioning and accounting norms for project finance, said a senior official from the central bank.
The banking regulator is also in the advanced stage of discussion for issuing guidelines on Expected Credit Loss (ECL) , said the same RBI official, who did not want to be named.
The most discussed aspects within the feedback pertained to provisioning requirements for banks, the official said, adding that the central bank had received more than 50 comments from stakeholders.
The RBI’s draft norms on project finance requires banks to set aside 5% as provisions for loans given for infrastructure and real estate projects.
“There were changes suggested/proposed on almost all points and we are examining them,” the official said. The central banker also said that the RBI’s norms of expected credit loss and on project finance could come into effect with an overlap but decline to elaborate on it.
The RBI is contemplating a staggered implementation of the increase in provisioning for project financing to soften the blow on lenders and give them ample time to prepare for any impact on profitability, ET reported on August 27.
After RBI issued the draft norms early this fiscal year it faced a push back from banks, corporates and finance ministry. The draft norms has proposed provisions retrospectively effective. While corporates said that the cost of implementing a project would go up, banks feared that they may not be able to fully pass the higher cost to the borrowers.
The draft norms proposed a three-year glide path towards 5% provisions- wherein it directed bank to provide 2% in fiscal 2025, 3.5% in fiscal 2026 and 5% by 2027. It substantially increases provisions from the flat 0.4% standard asset provisions on project loans currently.
Banks are hoping that this glide path may be staggered further by from three years to five years.
