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Indian Banks’ Association (IBA) plans to form a group for identifying existing projects in the infrastructure and core sectors with loans of over Rs 500 crore, to restructure and refinance these, in line with the recent change in Reserve Bank (RBI) rules.
Most such loans are under a consortium or multiple banking arrangements. RBI has given banks the flexibility to restructure project loans without changing the classification of such loans or any additional provisioning.
IBA would coordinate to complete the work of checking the viability and independent evaluation in three months, a senior public sector bank (PSB) executive said.
Four sectors expected to benefit from the RBI dispensation are infrastructure, construction, metals and mining. The banking sector’s exposure to infra – including power, roads and telecom — was put at Rs 8.88lakh-crore at end-October.
Broking outfit Espirito Santo Securities, in a note to investors, said most PSBs would benefit from this relaxation. Punjab National Bank among the larger ones and Andhra Bank among tier-2 PSBs are likely to benefit the most.
Rahul Prithiani, director with CRISIL Research, said the restructuring and refinancing was expected to improve the Internal Rate of Return for these projects by about 150 basis points. Some projects with a question mark about viability would become viable. Those not doing so badly would get cushion, he said.
Emkay Global Financial Services said the key issues facing the infra segment were are risk from regulatory changes, fuel supply constraints and debt servicing. The revised norms would help address the financing constraint by allowing bankers to match the loan repayment period with the cash flow from these projects. However, strong government action to resolve the structural issues would be the key determinant, Emkay said.
The revised norms would especially benefit projects facing a temporary cash flow mismatch. A clause in the new rule, to maintain the Net Present Value before and after refinancing, would deter bankers from a deep restructuring, it said.
