IBA for easing of core provisioning norms

Feels project implementation delay may mar financials.

Commercial banks want the Reserve Bank of India (RBI) to relax the provisioning norms for infrastructure project finance, as any delay in project implementation has the potential to make huge dent in profitability.

Infrastructure projects such as power plant, port and road construction require large capital outlay and the project reports go through rigorous appraisals and cash flow assessments, but some of them get delayed for reasons beyond the control of promoters, Indian Banks' Association (IBA) officials said.

The Reserve bank of India could consider a softer provisioning regime for infrastructure projects, they added.

"Any slight delay in project implementation owing to factors beyond the control of project managers and promoters could require banks to set aside large amounts to adhere to the stringent provisioning norms for non-performing assets," a senior banker said.

"The payment schedule for a project may undergo a change due to delays and may require extension of the moratorium for repayment of loans. Such rescheduling should get weightage while applying provisioning norms," said a chairman of a public sector bank.

The banks also want external commercial borrowing (ECB) ceiling to be raised. Banks are allowed to raise funds overseas up to 25 per cent of their net owned funds.

"Looking at the large funding requirement of infrastructure projects, the current ceiling should be relaxed for banks," said IBA chief executive, H N Sinor.

There is a need to liberalise resource raising avenues and rationalise stamp duty structure. Though government has provided tax sops for deposits over 5 year period, banks should also be permitted to issue tax-free bonds to fund infrastructure projects, IBA said.