To kickstart infrastructure projects, the Reserve Bank of India (RBI) has allowed banks to refinance project loans even if they have no pre-determined agreement with the consortium lenders.
Until now, RBI had made it mandatory that refinance by way of take-out financing could take place only with an agreement with the consortium of lenders.
The RBI now has allowed banks to refinance loans by way of full and partial take-out financing if the aggregate exposure of all institutional lenders to such project is a minimum of Rs 1,000 crore.
The repayment period will be fixed by taking into account the life cycle of and cash flows from the project, and, boards of the existing and new banks should be satisfied with the viability of the project. Further, the total repayment period should not exceed 85% of the initial economic life of the project/concession period in the case of public-private partnership projects.
Ranjan Dhawan, executive director, Bank of Baroda, said, "It is a good enabling provision, especially when the infra lending starts picking up. But now banks are sitting on excess liquidity."
The loans that are taken over or refinanced should be standard in the books of the existing banks at the time of refinancing. In case of partial take-out, a significant amount of the loan (a minimum 25% of the outstanding loan by value) should be taken over by a new set of lenders from the existing financing banks/financial institutions.
As per RBI rules, the promoters should bring in additional equity, if required, so as to reduce the debt to make the current debt-equity ratio and Debt Service Coverage Ratio of the project loan acceptable to the banks.
RBI is making it easier for banks to take up project finance by lifting hurdles in finance. The central bank last month allowed banks to extend 25-year loans to fund public works such as roads and ports, offering significant relief to developers by stretching the repayment period to cover the economic life of the project. Such loans can be refinanced every 5-7 years, provided the projects continue to meet strict monitoring guidelines and do not become non-performing assets in the initial years.
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