Rbi Lifts Monetary Ceiling On Infrastructure Loans

In a bid to enhance resource flows to upcoming infrastructure projects in power, ports, telecom and roads, the RBI has withdrawn the monetary ceilings and group lending norms for project finance.

The move, at the behest of Union finance minister P Chidambaram, follows a detailed review of the portfolios of financial institutions and banks. It was found that with several power projects poised to take off in the next fiscal year, many banks would not be able to lend within the confines of the existing norms.

The finance minister reviewed the norms with financial institutions/banks and looked at what can be relaxed without sacrificing prudential norms, said a government official.

 

Accordingly, the Reserve Bank of India has withdrawn the monetary ceiling of Rs 500 crore for a single non-power project and Rs 1,000 crore for a single power project. Henceforth, banks and financial institutions may provide term finance to all projects, including infrastructure projects, without any ceiling.

At present, lending to several impending infrastructure projects has been held up because of the fact that the funds sought are above the monetary ceilings, said financial institution sources.

The sources revealed that the IDBI has applications for rupee funding worth Rs 743 crore from Reliance Telecom, Rs 594 crore from BPL Cellular and Rs 2,100 crore from Tata Teleservices. The limit for funding a single telecom project was Rs 500 crore.

Similarly, the ceiling for power project funding was Rs 1,000 crore, while the applications pending before IDBI included one for Rs 1,000 crore from Pench Power, Rs 1,250 crore from Birla Power, Rs 1,280 crore from Videocon and Rs 1,500 crore from the Hindujas.

The RBI has also modified the existing norm on credit exposure to a single corporate group. The current norms specify that total exposure to a group cannot exceed 50 per cent of a bank or financial institutions net worth (paid-up capital and reserves). For infrastructure projects, this norm has now been relaxed to 60 per cent.

Earlier, the five prudential norms for bank lending were:

The total exposure of a bank/FI should not exceed 15 per cent of its risk weighted assets;

No bank/FI can undertake an exposure of over 25 per cent of its net worth to a single borrower;

The exposure should not be more than 50 per cent for the group as a whole;

No single non-power project should get more than Rs 500 cr, while no single power project should get more than Rs 1,000 cr;

Performance guarantee is treated as 50 per cent risk weightage and financial guarantee is treated as 100 per cent risk weightage.

As a result of the RBIs notification, the fourth norm (pertaining to monetary ceilings) has been withdrawn .while the third norm (pertaining to group lending) has been modified.