RBI relief for banks on project finance norms

IN A SIGNIFICANT relief to the banking sector, the Reserve Bank of India (RBI) has reduced the provisioning requirement for project finance in the construction phase to 1% from its earlier proposal of 5%.

- KSHIPRA PETKAR

In its final guidelines issued on Thursday, the banking regulator has increased the provisioning requirement by 25 basis points in the construction phase of the commercial real estate.

That is, a lender will have to maintain a general provision of 1.25% (1% earlier) at the construction phase of a commercial real estate project and 1% (0.75% earlier) at the operational phase—after commencement of repayment of interest and principal. In the case of commercial real estate-residential housing projects, the provisioning requirement would be 1% in construction and 0.75% during the operational phase.

FOR ALL OTHERS, provision of 1% has to be maintained during construction phase and 0.40% for operational phase. The guidelines will come into effect from October 1.