Anil Gupta, Sr VP & Co-Group Head-Financial Sector Ratings at ICRA, recently discussed the RBI’s proposal for tighter project finance rules in an interview with ET Now. Gupta mentioned that there may be more clarification needed on whether the 5% provision requirement applies to the entire under-construction portfolio of lenders or only to projects seeking a DCCO extension. He emphasized that the increase in provisioning is a positive step for lenders to manage risks associated with DCCO extensions.
The new guidelines aim to standardize asset provisioning for banks and NBFCs when projects defer their DCCO within a two-year period. If a project extends its DCCO beyond two years, additional provisions will be required. This is beneficial for strengthening balance sheets and ensuring realistic DCCO timelines for projects. Gupta also highlighted a provision release option if projects commence commercial operations and repay a portion of their debt.
When asked about the impact on companies like REC and PFC, Gupta noted that the regulations primarily affect projects with DCCO extensions, which may not be a significant portion of lenders’ portfolios. He stressed the importance of setting realistic DCCOs to avoid higher provisioning requirements.
Regarding concerns about lower loan growth, Gupta suggested that once clarification is provided on the scope of the provision requirement, it should not negatively impact credit flow in the sector. Overall, the new regulations aim to improve risk management and balance sheet strength for lenders while encouraging responsible project planning and execution.