The Reserve Bank of India (RBI) on Wednesday met various bankers to discuss the debt recast of Lavasa Corporation, which has now turned non-performing for them. On their part, the bankers made a request to the regulator for a special dispensation in terms of lower provisioning even after the debt recast.
For the record, banks can restructure a loan and continue to treat the account as performing, but then the standard asset provisioning requirement would go up five times. While normal loans madate a 0.4 per cent provisioning on standard asset, a restructuring would imply that the provisioning requirement rises to two per cent. Also, banks have to provide for diminution in the net present value of the project that may arise out of extending the loan repayment period. To avoid higher provisioning, the banks will have to get the regulator's permission.
Now, lenders have approached the RBI, requesting to treat a part of the loan to Lavasa project as infrastructure funding. Till date, banks had categorised loans to Lavasa as exposure to commercial real estate. This, according to the central bank, is a sensitive sector. The banks' exposure to commercial real estate has higher risk weight, which means lenders have to set aside higher capital.
As for Lavasa, it is being developed as hill-station project near Pune. Today, one senior executive of a public sector bank said while the developer is building residences, villas and hospitality set-ups — all of which are real estate — it has also spent considerable amount on construction of roads, bridges and dams as basic facilities in the proposed town. "The latter part is infrastructure, before commercial structures come up," he said. "So, there is a case being made out to treat this as eligible for restructuring with certain dispensation for relief."
However, since the infrastructure development is incidental in this case and as Lavasa is a township project, RBI may take a hard look before taking a decision, according to the bankers.
The city-headquartered Lavasa Corp is working on a project to create an integrated hill station township called Lavasa, spread over 12,500 acres, providing residential, business and leisure tourism and educational infrastructure. The project was envisaged to be taken up in four phases with development activities lined up till 2021.
Out of a total debt of Rs 2,100 crore, bank loan to Lavasa Corp was around Rs 850 crore, while some banks have also invested in the non-convertible debentures of the 2000-incorporated company. While most of the banks have identified the loans as non-performing, the company has serviced its dues for the negotiable certificates of deposit.
