Mumbai: To revive stalled plans and help banks tide over mounting bad loans, the RBI Monday eased norms for structuring of existing long-term project loans to infrastructure and core industries.
The new guideline widens the scope of 5:25 scheme by including existing standard long-term project loans worth over Rs 500 crore to be flexibly structured and refinanced.
"The banks can flexibly structure the existing project loans to infrastructure and core industries projects with the option to periodically refinance them," the Reserve Bank said in a circular.
The 5:25 scheme envisages banks to refinance or sell out their long-term project loans after every five years so that both the borrower and well as the lender doesn't face much of an issue. For banks to avail such a facility, the loan tenor cannot be more than 25 years.
In July, the RBI had allowed flexibility in structuring project loans only to new loans to infrastructure and core industries plans. The latest RBI move comes after banks demanded flexibility in structuring their existing long-term project loans.
The structuring will ensure long-term viability of existing infrastructure and core industries projects by aligning the debt repayment obligations with cash flows generated during their economic life, the circular said.
"Only term loans to projects, in which the aggregate exposure of all institutional lenders exceeds Rs 500 crore, will qualify for such flexible structuring and refinancing."
During the December 2 monetary policy review, Governor Raghuram Rajan had said he would soon come out with two key steps to help banks tide over the infra financing by amending the 5:25 scheme.
The circular said banks can refinance these term loans periodically, say every five to seven years, after the project has commenced commercial operations.
RBI said banks may fix a fresh amortisation schedule for the existing project loans once during the life time of the project, after the date of commencement of commercial operations (DCCO), based on reassessment of cash flows and without this being treated as 'restructuring'.
It, however, said the fresh schedule will be subject to certain conditions - the loan has to be a standard one as on the date of change, and net present value of debt should be the same before and after the change in amortisation plan.
"The fresh loan amortisation schedule should be within 85 percent (leaving a tail of 15 percent) of the initial concession period in case of infrastructure projects under public private partnership (PPP) model."
The central bank said the repayment at the end of each refinancing period could be structured as a bullet repayment, with the intent specified up front that it will be refinanced.
The refinance may be taken up by the same lender or a set of new lenders, or combination of both, or by issue of corporate bond as refinancing debt facility. Such refinancing may repeat till the end of the fresh loan amortisation schedule, the circular said.
"If the project term loan or refinancing debt facility becomes a non-performing asset (NPA) at any stage, further refinancing should stop and the bank, which holds the loan when it becomes NPA, would be required to recognise the loan as such and make necessary provisions," RBI said.
However, once the account comes out of NPA status, it will be eligible for refinancing.
Banks may determine the pricing of loans at each stage of the project term loan or refinancing debt facility in proportion with the risk at each phase of the loan. Such pricing should not be below the base rate of the bank, it added.
Banks should recognise from a risk management perspective that there will be a probability the loan will not be refinanced by other banks, and should take this into account when estimating liquidity needs as well as stress scenarios, the circular said.
The apex bank clarified banks may also provide longer loan amortisation under the said framework to existing project loans which are classified as 'non-performing assets'.
However, such an exercise would be treated as 'restructuring' and the assets would continue to be treated as 'non-performing asset'," RBI said.
It said such accounts may be upgraded only when all the outstanding loan or facilities in the account perform satisfactorily during the 'specified period', i.e. Principal and interest on all facilities in the account are serviced as per terms of payment during that period.
The RBI said periodic refinance facility would be permitted only when the account is classified as 'standard'.
