MUMBAI: The Reserve Bank has relaxed norms for refinancing of infrastructure loans which banks want to be tagged as standard assets. From April 2015, the moment a loan is restructured, banks will have to classify them as bad loan.

RBI had made an exception to the rule by allowing banks to classify infrastructure loans as standard assets if half of the outstanding loans are refinanced by a new set of lenders in the form of take-out financing.
On Thursday, the central bank relaxed this norm by allowing standard tag if 25 per cent of the outstanding is met through take-out financing. Also, an infrastructure loan that is refinanced can be tagged as standard asset provided promoters are willing to invest more equity in the project.

But the standard tag will be applicable only if the project has started commercial operation, the central bank said on Thursday. It said this dispensation would be only for infrastructure loans above Rs 1,000 crore and for loans that are not restructured in the past.

RBI decided to relax take-out financing norm from 50 per cent after bankers said it is difficult to adhere to because a significant number of banks are already part of the consortium or multiple banking arrangement of big project loans.

RBI has said a project would not be classified as restructured provided it has started commercial operation after achieving date of commencement of commercial operation ( DCCO).

Last month, RBI gave more flexibility to banks in structuring infrastructure loans since a majority of the loans were disbursed for a shorter tenure even as it is known that companies take a long time to execute infrastructure projects.

From April 2015, banks will have to make a provision of at least 15 per cent on the loans that are restructured against 3.5 per cent now. They fear that the huge provisioning requirement will eat into their profits and thus want to avoid loans being tagged as restructured.

As per RBI data, banks’ exposure to infrastructure sector stood atRs 8,58,000 crore as on June 27 against Rs 7,29,700 crore a year ago. The revised norm is significant for banks since it is estimated that a huge amount of their stress loan — restructured loans and loans on which companies have defaulted — is from infrastructure sector.