Commercial banks for 1-2% project finance provisioning; RBI proposed 5%

Industry sees short-term pain

Commercial banks are planning to write to the Reserve Bank of India (RBI), seeking a lower provision rate of 1-2 per cent as compared to the 5 per cent proposed in the recent draft norms on project finance. These draft norms propose to increase standard asset provision to 5 per cent, even for existing loans, from 0.4 per cent currently.

Such an  increase in provisioning requirements could push the financing cost of projects, potentially rendering them unviable, argue bankers and experts. According to industry executives, lenders would suggest a 1 per cent standard asset provision for government or public sector projects,