Non-banking finance companies (NBFCs) have submitted their feedback to the Reserve Bank of India (RBI) on the proposed new rules for project financing, seeking various relaxations through their representative body, the Finance Industry Development Council (FIDC).
The FIDC, chaired by Shriram Finance’s Executive Vice Chairman Umesh Revankar, has conveyed the concerns and suggestions of NBFCs.
CNBC-TV18 has reviewed the letter sent by FIDC to the RBI.
Key feedback points
Provisioning for Construction Phase: FIDC has requested that the proposed flat provision of 5% for all projects in the construction phase be replaced with the standard provision rate of 0.4%.
They suggest that enhanced provisioning should only apply to projects with a Date of Commencement of Commercial Operations (DCCO) extension.
According to FIDC, this approach would ensure better project selection by lenders.
Minimum Exposure Limits: The RBI has proposed that for projects financed under consortium arrangements:
If the aggregate exposure exceeds ₹1,500 crore, the individual exposure floor should be 5% or ₹150 crore, whichever is higher.
FIDC has suggested that these minimum exposure limits be eliminated, advocating instead for commercial agreements between the parties involved.
They argue that this will clarify and protect the rights and duties of all parties.
DCCO extension: For permitted extensions of the DCCO due to exogenous or endogenous risks, the RBI has proposed deferments of up to one year for exogenous risks and up to two years for infrastructure projects and one year for non-infrastructure projects for endogenous risks.
The NBFC body has requested a standard two-year deferment be permitted for all projects without downgrading the account.
Access to CRILC: FIDC reiterated the industry’s longstanding request for NBFCs to have access to the Central Repository of Information on Large Credits (CRILC) to ensure timely awareness of credit events reported by banks.
Funding Cost Overruns: The FIDC also addressed the issue of cost overruns, stating that these can occur for various reasons, including those beyond the control of borrowers or lenders.
They argued that capping the amount of cost overrun funding could inhibit project continuation, even with DCCO extensions. Therefore, they requested that no limit be placed on the maximum cost overrun that can be funded, leaving it to commercial decision-making.
The RBI has invited feedback on the draft project financing rules from all stakeholders by June 15, and final guidelines are expected to be framed only post all comments and views are received.
The FIDC, chaired by Shriram Finance’s Executive Vice Chairman Umesh Revankar, has conveyed the concerns and suggestions of NBFCs.
CNBC-TV18 has reviewed the letter sent by FIDC to the RBI.
Key feedback points
Provisioning for Construction Phase: FIDC has requested that the proposed flat provision of 5% for all projects in the construction phase be replaced with the standard provision rate of 0.4%.
They suggest that enhanced provisioning should only apply to projects with a Date of Commencement of Commercial Operations (DCCO) extension.
According to FIDC, this approach would ensure better project selection by lenders.
Minimum Exposure Limits: The RBI has proposed that for projects financed under consortium arrangements:
If the aggregate exposure is up to ₹1,500 crore, no individual lender should have an exposure of less than 10% of the aggregate.
If the aggregate exposure exceeds ₹1,500 crore, the individual exposure floor should be 5% or ₹150 crore, whichever is higher.
FIDC has suggested that these minimum exposure limits be eliminated, advocating instead for commercial agreements between the parties involved.
They argue that this will clarify and protect the rights and duties of all parties.
DCCO extension: For permitted extensions of the DCCO due to exogenous or endogenous risks, the RBI has proposed deferments of up to one year for exogenous risks and up to two years for infrastructure projects and one year for non-infrastructure projects for endogenous risks.
The NBFC body has requested a standard two-year deferment be permitted for all projects without downgrading the account.
Access to CRILC: FIDC reiterated the industry’s longstanding request for NBFCs to have access to the Central Repository of Information on Large Credits (CRILC) to ensure timely awareness of credit events reported by banks.
Funding Cost Overruns: The FIDC also addressed the issue of cost overruns, stating that these can occur for various reasons, including those beyond the control of borrowers or lenders.
They argued that capping the amount of cost overrun funding could inhibit project continuation, even with DCCO extensions. Therefore, they requested that no limit be placed on the maximum cost overrun that can be funded, leaving it to commercial decision-making.
The RBI has invited feedback on the draft project financing rules from all stakeholders by June 15, and final guidelines are expected to be framed only post all comments and views are received.
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