Finance Ministry requests RBI to relax rules for Infra financing
The Finance Ministry of India has great expectations from the new governor of the Reserve Bank of India (RBI) in terms of reviving the economy. However, it wants to keep its monetary policy untouched and hence has refrained from seeking lower rates of interest to stimulate growth.
Economic Affairs secretary requests Gov of RBI for changes in Infra financing:
In a bid to revive growth and investment in the infrastructure sector, the Economic Affairs secretary has requested the governor of RBI to bring about certain well-measured changes. These are with regards to changes in the rules for infrastructure financing as well as with regards to the treatment of non-performing loans to the infra sector.
Ministry moots refinancing of delayed projects:
In instances of delayed infrastructure projects where the promoters are not to be blamed, the finance ministry suggested that the RBI relax the rules so as to provide them with sufficient leeway. It was felt that provision should be provided for refinancing of such loans, instead of treating them as restructured loans, requiring higher provisioning. Following the economic slowdown, there has been an increase in such projects during the last three years.
Delays in clearances leave projects in limbo:
It has been seen that due to delays in various clearances, projects worth more than Rs.15 crore have been in limbo. This is inspite of the efforts of the finance ministry with regards the creation of the Cabinet Committee on Investments (CCI) as well as the Project Monitoring Group (PMG) to put derailed infra projects back on track, by facilitating the necessary clearances.
PMG suggests restructuring for delayed projects:
The Productivity Management Group (PMG) is keeping a close vigil with regards the implementation of 99 delayed projects costing about Rs. 3.6 lakh crore. Due to the inordinate delays landing these projects in a quandary, financial restructuring was imperative to get them started, inspite of regulatory issues being sorted out.
Banks averse to refinancing:
Refinancing, particularly for infrastructure projects, is globally accepted, due to the long gestation period of these projects. However, it is yet to gain prominence in our country due to RBI’s rigid norms. Banks are also averse to provide refinancing as it will involve extension of loan maturity periods. Banks will thus be forced to make higher provisioning for such loans, thereby increasing the financial burden on them.
Distinction between ‘restructuring’ and ‘rescheduling’ sought:
Meanwhile, the finance ministry wants the RBI to have a re-look at its circular. As mentioned in this circular, the RBI had increased the provisions of new restructured accounts to 5%. The ministry also wants a vivid distinction made between restructuring and rescheduling of loans. Loans granted to projects delayed due to land acquisition issues or environment clearances were requested to be in the ‘rescheduling’ category. ‘Restructuring’ was requested where the entire repayment program needed to be extended due to reasons within or beyond the control of the developer.
