Banks Pause Fresh Project Approvals Seeking Clarity From RBI

The pure-play project finance loans are temporarily paused for most lenders, the three bankers told NDTV Profit. The lenders are seeking clarity on the regulator's final stance on project finance loans, they added.

According to the first of the three lenders mentioned above, the pause is currently limited to loans availed by special purpose vehicles, where the balance sheet support of the parent is not part of the proposal. The first person, an official at a large private bank, said that the proposals where a highly rated parent takes on the debt on its own balance sheet are still under consideration.

Lenders are wary of extending fresh loans to projects, as they may get covered under RBI’s new project finance norms, and are pitching for a differential treatment of public and private sector project, sources said.

The banking regulator's draft rules on project finance propose 5% standard asset provisioning for such loans from the current 0.4%, in May. The 5% mark would be achieved over three financial years till FY27 in a phased manner, the RBI's draft had proposed.

According to the draft, the higher standard asset provisioning will apply to past projects as well. As per ICRA’s estimates, the current stage 1 provision for NBFC-IFCs is 0.6%, which would need to be increased gradually to meet the proposed requirements.

RBI had courted feedback from all stakeholders by June 15. Lenders have written to the RBI in the form of feedback, seeking clarity and lenience on certain proposed measures.

In their responses, lenders are seeking differential treatment for projects backed by public and private sector promoters. They are also seeking a review of the 5% provisioning number, as it will increase the upfront charges on such projects, the three lenders quoted above said.

Even before the RBI's draft came into the picture, lenders had started building in clauses in loan proposals where they would be free to charge additional interest, if the regulator tightened the capital requirements on wholesale lending.

In November 2023, RBI had said that bank loans to non-bank finance companies would attract a higher risk weight. This had suddenly raised the capital cost on such loans, forcing banks to raise lending rates.