The RBI, on Friday issued guidelines for project financing. It proposed to the lenders they now need to set aside higher provisions for under-construction infrastructure projects. This move comes after the experience of the banks w.r.t financing of project loans. RBI has also asked them to ensure strict monitoring of any emerging stress.

The proposed new norms:

• Banks set aside a provision of 5% of the loan amount when the project is in the construction phase, which can be reduced to 2.5% when a project becomes operational and 1% after the project starts generating cash sufficient to cover the lenders' repayment requirements.
• Lenders coming together in a consortium to finance projects worth up to Rs.1500 crore must have an exposure of at least 10%.
• For projects where aggregate exposure of lenders is more thanRs.1,500 crore, this individual exposure floor shall be 5% or Rs.150 crore, whichever is higher.
• Banks to have clear visibility on the date on which a project is expected to begin commercial operations and increase provisions in case operations are delayed.
• Delays greater than three years for infrastructure projects should prompt a change in the classification of the loan from standard to stressed, the central bank suggested.

RBI has sought comments on its proposals by June 15 before finalising the rules.

Following this, analysts are of the opinion that infra-NBFCs like REC, PFC,IREDA  will have no impact on the RoE but could impact their Tier 1 ratio by 200-300 bps and will also potentially weigh on their valuation multiples.

That’s the reason why currently, REC and PFC are the top losers on the BSE. PFC went down over 12% to Rs.421 and REC fell 11% to Rs.497. IREDA went down 7% at Rs.167.55.