Reserve Bank of India (RBI) On Friday, it proposed to tighten the rules related to giving loans to under construction projects. The central bank’s draft rules propose to classify projects according to their stage and make a higher provision of up to five per cent during the construction phase. In the last loan cycle, there was increased pressure on the books of banks due to project loans. The standard asset provision is 0.40 per cent.
Under the proposed norms, a bank will have to set aside five per cent of the loan during the construction phase. However, this ratio reduces as the project progresses. The introduction of these standards was first announced by RBI in September 2023. Opinions have been sought from concerned parties on the proposals till June 15. As per the proposed norms, financial provisions can be brought down to 2.5 per cent of the financed balance once the project reaches ‘operational stage’ and then reduced to one per cent subject to fulfillment of certain conditions.
These guidelines specify the criteria for updating accounts with details related to resolution of debt stress and call for validation. The financial institution will update any changes in the parameters of the project finance loan within 15 days. Necessary system in this regard will be established within three months of the issue of these instructions.
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