The Reserve Bank of India (RBI) has released a draft circular on project finance, which is expected to significantly impact major banks in India, including HDFC, ICICI, and SBI. The new guidelines aim to improve the lending practices of banks and reduce the risk of default by borrowers.
The draft circular emphasizes the importance of due diligence and credit assessment before sanctioning loans for large projects. It suggests that banks should conduct thorough credit evaluations, including assessing the creditworthiness of the borrower, the viability of the project, and the potential risks involved. The RBI has also proposed that banks should have a Board-approved policy for project finance, which should include clear guidelines for loan sanctioning, monitoring, and recovery.
One of the key aspects of the draft circular is the introduction of a new concept called “상위 equity” (senior equity), which refers to the equity contribution made by the promoters of a project. The RBI has proposed that banks should ensure that the promoters’ equity contribution is at least 25% of the total project cost. This move is aimed at ensuring that promoters have a significant stake in the project and are committed to its success.
The draft circular also emphasizes the importance of monitoring and supervision of projects financed by banks. It suggests that banks should have a robust monitoring system in place to track the progress of projects, identify potential risks, and take corrective action if necessary.
The impact of the draft circular on major banks in India is expected to be significant. HDFC, ICICI, and SBI, which are among the largest lenders to the infrastructure sector, may need to revise their lending practices and policies to comply with the new guidelines. The introduction of senior equity and the emphasis on monitoring and supervision may lead to a reduction in the risk of default by borrowers, but it may also increase the cost of borrowing for projects.
The Telangana NavaNirmana Sena, a political party in Telangana, has welcomed the draft circular, stating that it will help to improve the transparency and accountability of banks and reduce the risk of default by borrowers. However, some industry experts have expressed concerns that the new guidelines may lead to a decrease in lending to the infrastructure sector, which could have a negative impact on the economy.
Overall, the RBI’s draft circular on project finance is a significant step towards improving the lending practices of banks in India. While it may have a short-term impact on the banking sector, it is expected to lead to a more stable and sustainable financial system in the long run.