DELHI: The Reserve Bank of India will soon relax norms for the takeover of infrastructure loans, allowing them to be treated as standard assets even if they are rescheduled during the process. Under the current rules, any rescheduled loan is treated as a non-performing loan (NPL) for which banks have to make provisions.
The new rules are expected to give a big boost to refinancing by newly established infrastructure debt funds (IDFs). "The RBI has agreed for change in norms... A directive is expected soon," said a senior government official.
IDFC has raised $1 billion while IL&FS has a Rs 750 crore IDF ready for deployment.
The directive is expected to spell out that an infrastructure loan taken over by an IDF would be treated as standard asset and not as a rescheduled loan. IDFs were launched in 2011 to facilitate the flow of longterm funds to the infrastructure sector, but have seen little traction in the last two years.
India allows two types of IDFs - one of them operates as mutual funds and are supervised by Securities and Exchange Board of India and the other kind operates as nonbanking financial companies and are regulated by the central bank.
IDFs have been facing difficulty in lending due to stringent norms governing the refinancing of loans.
The RBI directive will help ease lending by them, the official added.
IDFs will essentially act as vehicles for refinancing existing debt of infrastructure companies, thereby creating fresh headroom for banks to lend to new infrastructure projects.Typically, IDFs take over loans extended to infrastructure projects that are created through the public private partnership (PPP) route that have successfully completed one year of commercial production.
This also helps clean up books of banks and prevents asset-liability mismatches that banks face in funding long-term projects from shorter tenure deposits of three-five years. Banks also have restrictions on how much they can lend to an individual project or a group. Credit enhancement by way of refinance through IDFs would ease some pressure on banks.
India had allowed take-out financing in the 2009-10 budget.
The finance ministry wanted a change in the norms as part of a big plan to get the infrastructure sector back on track after finance minister P Chidambaram pushed the government to create a Cabinet Committee on Investment to clear large projects that were stuck.
The infrastructure sector, hit hard by the delays in clearances, is also burdening banks' balance sheets. The sector requires $1 trillion investment in the 12th plan Period (2012-17).
Bankers agree that such a move will reduce the burden on banks as infrastructure loans often lead to an asset-liability match. "It can free up assets for further lending," said KR Kamath, chairman of Punjab National Bank.