Bringing non-banking finance companies (NBFCs) at par with banks, the Reserve Bank of India (RBI) has allowed the latter to refinance fresh infrastructure project loans in 5-7 year intervals to improve project viability and debt-servicing capacity of their borrowers. Earlier, only banks enjoyed the leverage of refinancing infrastructure project as the economy remained fairly distant from a complete revival.
However, with the latest relaxation, India’s central bank allowed NBFCs to fund cost overruns, which may arise on account of extension of date of commencement of commercial operations of infrastructure and non-infrastructure projects, within specified time limits. However, NBFCs could fund cost over-runs (up to a maximum of 10% of the original project cost) without treating the loans as a ‘restructured asset’, only if they fund additional ‘Interest during Construction’, arising mainly on account of delay in completion of a project.
In other conditions laid down by the RBI, debt-equity ratio agreed by the NBFCs at the time of initial financial closure should remain unchanged subsequent to funding cost overruns, or improve in favour of the lenders and that the disbursement of funds for cost overruns should start only after the sponsors/promoters bring in their share of funding of the cost overruns.
Notably, as per the current guidelines, revisions of the date of commencement of commercial operations (DCCO) and consequential shift in repayment schedule for equal or shorter duration will not be treated as restructuring.
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Wednesday, 21 January 2015
RBI allows NBFCs to recast infra project loans
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