FinMin to discuss RBI's draft project financing norms with banks, IBA

The official said banks will assess the impact of the draft rules on their balance sheets and can approach the RBI based on their assessment

The Finance Ministry will discuss the Reserve Bank of India’s (RBI) draft project financing norms with banks and the Indian Banks’ Association (IBA) soon, said a senior Finance Ministry official, requesting anonymity.

“We will discuss this matter with banks and the IBA, and will take it forward after receiving comments from the banks,” the senior government official said.

The official said that although no bank has approached the government so far, the Finance Ministry has taken note of the RBI’s proposed norms to tighten project financing and is currently studying it.

The Finance Ministry official said banks will assess the impact of the draft rules on their balance sheets and can approach the RBI based on their assessment.

The banking regulator recently released draft guidelines on the ‘Prudential Framework for Income Recognition, Asset Classification and Provisioning pertaining to Advances — Projects Under Implementation’. The guidelines propose a phased 5 per cent standard asset provision during the construction phase.

One reason for the sharp increase in provision norms is the rise in non-performing assets (NPAs) over the past decade, primarily due to many infrastructure loans turning bad. Gross NPAs hit 11.8 per cent of gross advances by March 2018, but have fallen over the past five years to 3.2 per cent as of September 2023.

“We are seeing that this draft regulation will increase the stress on the banks’ side and definitely have a serious impact on our business book. We are planning to approach the Finance Ministry on this matter,” said a senior public sector bank official who does not wish to be named.