RBI makes take-out financing less cumbersome

The Reserve Bank today allowed banks to refinance existing infrastructure project loans through take-out financing agreements with any financial institution.
"Banks can refinance their existing infrastructure project loans by entering into take-out financing agreements with any financial institution on a pre-determined basis," the RBI said in its 'Framework for Revitalising Distressed Assets', released this evening.
The central bank said infrastructure and other project loans can be refinanced by other institutions which substantially take over the loan, and the refinancing institution can fix a repayment period by taking into account the life cycle of the project and cash flows from the project.

One of the major sources of the bad loans is infra sector.
The RBI in its half-yearly financial stability report on December 30 had projected that gross non-performing assets in the system would rise to 4.6 per cent by September 2014 from 4.2 per cent in September 2013 or about Rs 2.29 trillion from Rs 1.67 trillion a year earlier. The amount of recast loans touched an all-time high of Rs 4 trillion or 10.2 per cent of the overall advances as of September 2013.
The report had said though agriculture accounted for the highest gross NPAs at 5.5 per cent as of the quarter to September 2013, it is the industrial sector with a gross NPAs of 4.9 per cent and 10.9 per cent of restructured loans which is the main culprit.

The RBI today said even if the revised repayment period is longer than the residual repayment period in the earlier bank's books, the account will not be considered restructured, as long as a proper due diligence has been done by the refinancing bank or institution.
This will help banks to report better profit numbers as provisions are not required in such loans; under the existing norms, a bank has to set aside 5 per cent of the CDR loans as provisions.