RBI/2009-10/421
DBOD No. BP.BC. 96 / 08.12.014/ 2009-10
April 23, 2010
All Scheduled Commercial Banks
(excluding RRBs)
Dear Sir,
Prudential norms on Advances to Infrastructure Sector
Please refer to paragraphs 96 and 97 of the Annual Policy Statement for the year
2010-11 (extract enclosed) wherein it has been proposed (i) to treat annuities
and toll collection rights as tangible securities, and (ii) to reduce the
provisioning required on unsecured infrastructure loan accounts classified as
sub-standard to 15 per cent.
- In terms of paragraph 2(a) of our circular
DBOD.No.BP.BC.125/21.04.048/2008-09 dated April 17, 2009 on ‘Prudential Norms on
Unsecured Advances’, rights, licenses, authorizations, etc. charged to banks as
collateral in respect of projects (including infrastructure projects) should not
be reckoned as tangible security. In partial modification to the above it has
been decided that banks may treat annuities under build-operate-transfer (BOT)
model in respect of road/highway projects and toll collection rights, where
there are provisions to compensate the project sponsor if a certain level of
traffic is not achieved, as tangible securities subject to the condition that
banks’ right to receive annuities and toll collection rights is legally
enforceable and irrevocable.
- In terms of paragraph 6 of our circular No.DBOD.BP.BC.97/ 21.04.141/ 2003-04
dated June 17, 2004 on ‘Prudential Guidelines on Unsecured Exposures’ it is
stipulated that unsecured exposures identified as sub- standard would attract
additional provision of 10 per cent, i.e., a total of 20 per cent on the
outstanding balance. In view of certain safeguards such as escrow accounts
available in respect of infrastructure lending, it has been decided that
infrastructure loan accounts which are classified as sub-standard will attract a
provisioning of 15 per cent instead of the current prescription of 20 per cent.
To avail of this benefit of lower provisioning, the banks should have in place
an appropriate mechanism to escrow the cash flows and also have a clear and
legal first claim on these cash flows.
Yours faithfully
(B. Mahapatra)
Chief General Manager
Extract of paragraphs 96 and 97 of the Annual Policy Statement for the year
2010-11
96. In terms of extant instructions, rights, licenses and authorisations of
borrowers, charged to banks as collateral in respect of project loans (including
infrastructure projects) are not eligible for being reckoned as tangible
security for the purpose of classifying an advance as secured loan. As toll
collection rights and annuities in the case of road/highway projects confer
certain material benefits to lenders, it is proposed:
* to treat annuities under build-operate-transfer (BOT) model in respect of
road/highway projects and toll collection rights, where there are provisions to
compensate the project sponsor if a certain level of traffic is not achieved, as
tangible securities subject to the condition that banks’ right to receive
annuities and toll collection rights is legally enforceable and irrevocable.
97. Till June 2004, the Reserve Bank had prescribed a limit on banks’ unsecured
exposures. As a step towards deregulation, the above limit was withdrawn to
enable banks’ Boards to formulate their own policies on unsecured exposures. The
provisioning requirement for unsecured sub-standard exposures, however, was
increased to 20 per cent consequent to the withdrawal of limits on banks’
unsecured exposures (the provisioning requirement for secured sub-standard
exposures stands at 10 per cent). In view of certain safeguards such as escrow
accounts available in respect of infrastructure lending, it is proposed that:
* infrastructure loan accounts classified as sub-standard will attract a
provisioning of 15 per cent instead of the current prescription of 20 per cent.
To avail of this benefit of lower provisioning, banks should have in place an
appropriate mechanism to escrow the cash flows and also have a clear and legal
first claim on such cash flows.