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Govt mulls easing lending norms for developers

The finance ministry is evaluating a demand by highway developers for relaxing the lending norms for a host of projects rendered unviable by aggressive bidding and low traffic growth.

The finance ministry is evaluating a demand by highway developers for relaxing the lending norms for a host of projects rendered unviable by aggressive bidding and low traffic growth.

The RBI, Indian Banks’ Association and some of the largest lenders had earlier discussed the demand from developers, the projects of many of whom are also being considered for premium rescheduling.

The department of financial services (DFS) in the ministry is learnt to be disinclined to accept the demand for creating a separate category of bank lending below base rate for them in a project’s initial stage, saying such a move would be ‘market distorting’.

Sources said an internal meeting in the ministry on Tuesday will be chaired by finance minister P Chidambaram. The DFS, the nodal body for banking under the finance ministry, is also against another major demand of the developers, which is that they be allowed to defer servicing a portion of the interest amount during the initial period of 3-4 years without it triggering the non-performing asset provisioning as per prudential norms.

“No one, including the RBI and government, would like to tamper with the base rate. Not just highway developers, many sectors are suffering due to the slowdown and therefore, they will also ask for similar concessions. Banks have also been hit due to high non-performing assets. Besides, due to budgetary constraints, the government also currently has no plans to offer any subsidy package or interest subvention scheme for highway developers,” an official told FE.

The DFS, sources said, asked developers to hold negotiations with bankers independently and arrive at better lending terms and conditions till they tide over the crisis.

Industry sources said representatives from leading highway developers, including Reliance Infra, L&T, IRB and Madhucon, had recently met the economic affairs secretary Arvind Mayaram and DFS secretary Rajiv Takru regarding the issue.

The National Highway Builders Federation (NHBF), in a letter to RBI governor Raghuram Rajan, pointed out that the current regulatory stipulation requires borrowers to service the interest within the permitted time frame, else the account would be classified as NPA (that is if interest and/or installment of principal is overdue for over 90 days in case of a term loan).

The RBI had also eased the norms to say that though a loan for an infrastructure project will be classified as NPA if it fails to commence commercial operations within two years from the original Date of Commencement of Commercial Operation (DCCO), this is relaxed for those infrastructure projects delayed for other reasons beyond the control of promoters by up to another 1 year (that is a total extension of 3 years) in other than court cases. For infrastructure projects involving court cases, the total extension is 4 years.

“Since the initial toll revenues are lower, it is difficult for the borrower concessionaire to meet the interest servicing obligation out of the toll revenues,” NHBF director-general M Murali said, adding that it would force promoters to infuse additional funds to meet the interest and repayment obligations of the project to avoid default.

Though banks have allowed lower principal payment in the initial years, they have not been addressing the issue relating to interest servicing, Murali said.

Considering the positive impact that highway development would have on the entire economy, the NHBF said the RBI should permit banks to lend at rates lower than the base rate in the beginning of a project and gradually increasing the rate in the later stages to maintain the overall yield on the loan intact and in sync with the project’s cash flows.

Alternatively, the RBI should create an exemption to the NPA provisioning norms by allowing developers to defer a significant portion of the interest servicing to a future date, NHBF said.

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First published on: 21-01-2014 at 05:15 IST
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