The Reserve Bank of India (RBI) unveiled draft guidelines on project financing aimed at enhancing transparency and risk management in consortium lending, proposing a minimum loan exposure floor for banks and mandated standards for asset provisioning during project phases.
In the draft guidelines, the RBI outlined specific provisions governing project finance, particularly in consortium arrangements. For projects with aggregate exposure up to Rs 1,500 crore, individual lenders must maintain a minimum exposure of at least 10 percent of the total project exposure. In cases where exposure exceeds Rs 1,500 crore, the floor for individual exposure is set at 5 percent or Rs 150 crore, whichever is higher.
The RBI emphasised the importance of financial closure and clear documentation of the Date of Commencement of Commercial Operation (DCCO) before disbursing funds. Lenders are directed to align disbursement with project completion stages, particularly in Public-Private Partnership (PPP) projects, where funds should be released post the project’s appointed date.
Project lifecycle
The project lifecycle is divided into three distinct phases: design, construction, and operational. The operational phase, marked by commercial operation commencement, triggers specific asset provisioning requirements. The RBI proposed a gradual approach to provisioning during the construction phase, with banks required to provision 2 percent by March 31, 2025, escalating to 3.50 percent by March 31, 2026, and culminating in 5 percent by March 31, 2027.
Importantly, banks may reduce provisioning to 2.5 percent during the operational phase if the project demonstrates positive net operating cash flow, covering repayment obligations, and experiences a 20 percent decline in long-term debt from the DCCO stage.
For accounts deferring DCCO and classified as ‘standard’, additional provisions of 2.5 percent are mandated for infrastructure and non-infrastructure projects with deferments exceeding two and one year, respectively. These provisions are reversible upon commercial operation commencement.
Addressing asset quality, the RBI’s guidelines offer a pathway for upgrading project finance accounts classified as non-performing assets (NPA) after 360 days from the review period’s end, subject to successful review implementation and stability in asset value.
Stakeholders are invited to provide feedback on the draft guidelines by June 15.
