FinMin to discuss RBI’s draft project finance norms with banks, IBA

The finance ministry will soon discuss the Reserve Bank of India’s (RBI) draft project finance norms with banks and the Indian Banks’ Association (IBA), said a senior finance ministry official, requesting anonymity.

“We will discuss this matter with the banks and the IBA and will take it further after receiving comments from the banks,” the senior government official said.

The official said while no bank has approached the government so far, the finance ministry has taken note of the RBI’s proposed norms to tighten project financing and is currently studying them.

The finance ministry official said banks will assess the impact of the draft rules on their balance sheets and may approach the RBI based on their assessment.

The banking regulator recently released draft guidelines on the ‘Prudential Framework for Income Recognition, Asset Classification and Provisions Related to Advances – Projects Under Construction’. The guidelines propose a phased standard asset provision of 5 percent during the construction phase.

One reason for the sharp rise in provisioning standards is the rise in non-performing assets (NPAs) over the past decade, mainly due to many infrastructure loans going bad. Gross NPAs stood at 11.8 percent of gross advances in March 2018, but have declined over the past five years to 3.2 percent as of September 2023.

“We see that this draft regulation will increase the pressure on the banks and will certainly have a serious impact on our business portfolio. We plan to approach the finance ministry on this issue,” said a senior public sector banking official, who did not wish to be named.

First print: May 9, 2024 | 12:28 pm IST