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Tweaks suggested to RBI's draft project finance rules by IBA, govt: Sources

The Indian Banks' Association (IBA) and government sources have suggested modifications to the Reserve Bank of India's (RBI) draft guidelines on project finance, aiming to mitigate potential adverse effects on infrastructure development. The draft, released in May, proposed that banks set aside 5% of the loan amount as provisions during the construction phase, reducing to 2.5% once the project becomes operational, and further to 1% when it achieves stable cash flows. These stringent provisioning norms have raised concerns about increased borrowing costs and potential delays in project completion. The IBA has recommended a phased implementation of these norms, suggesting a transition period to allow banks to adjust to the new requirements without immediate financial strain. Additionally, there are calls for a more flexible approach to provisioning, considering the varied nature of infrastructure projects. The government is also contemplating these suggestions to balance financial stability with the need for infrastructure growth.

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