Infra loans: RBI eases norms to give more flexibility to banks

To revive stalled plans and help banks tide over mounting bad loans, the RBI today eased norms for structuring of existing long-term project loans to infrastructure and core industries.

The new guideline widens the scope of 5:25 scheme by including existing standard long-term project loans worth over Rs 500 crore to be flexibly structured and refinanced.

"The banks can flexibly structure the existing project loans to infrastructure and core industries projects with the option to periodically refinance them," the Reserve Bank said in a circular.

The 5:25 scheme envisages banks to refinance or sell out their long-term project loans after every five years so that both the borrower and well as the lender doesn't face much of an issue. For banks to avail such a facility, the loan tenor cannot be more than 25 years.

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.

The structuring will ensure long-term viability of existing infrastructure and core industries projects by aligning the debt repayment obligations with cash flows generated during their economic life, the circular said.

"Only term loans to projects, in which the aggregate exposure of all institutional lenders exceeds Rs 500 crore, will qualify for such flexible structuring and refinancing."

During the December 2 monetary policy review, Governor Raghuram Rajan had said he would soon come out with two key steps to help banks tide over the infra financing by amending the 5:25 scheme.

The circular said banks can refinance these term loans periodically, say every five to seven years, after the project has commenced commercial operations.