RBI may relax NPA norms for infra loans

RUN-UP TO THE CREDIT POLICY

Asset classification norms relate to the period in which banks classify their loans and advances as standard or performing assets or non-performing.

This move has been triggered by the fear that several gas-based power projects in the South are likely to turn into non-performing assets (NPA) on bank books.

Banking sources said that even if the customer is servicing the interest requirement on such loans, commercial production is yet to begin in many projects.

For classifying an infrastructure project in the performing category, it is not only essential for the customer to service the interest payments but also ensure that the commercial production has also kicked off.

The central bank had earlier already extended the period for NPA classification from six months to one year. However, the banks under the aegis of the Indian Banks' Association (IBA), have represented to RBI to increase the time for classification of such loans into NPA.

In a related development, RBI is now in favour of relaxing the norms for external commercial borrowing (ECB).

Sources said even as the relaxation has been postponed due to inflationary concerns, RBI has started approving proposals involving import expenditure in dollar above $500 million for companies engaged in infrastructure. These proposals were being kept on hold by RBI's empowered committee for over a year.

The government may even relax the norm for foreign currency borrowing to be used for rupee expenditure. It has noted in its comments to the government that more than the infrastructure sector, the curbs on rupee expenditure has hit the small and medium sector enterprises.