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Informist, Friday, Dec. 6, 2024

--RBI Das: Do not intend to disrupt business from project finance, LCR norms

--RBI Das: Have to proceed carefully on project finance, LCR norms 

--RBI Rao: Will not give definite timeline on LCR norms rollout 

--RBI Rao: Got significant feedback on project finance, LCR norms

MUMBAI – The Reserve Bank of India has to proceed carefully with the implementation of project finance and the new liquidity coverage ratio measures, Governor Shaktikanta Das said at the post-monetary policy press conference Friday. "We have followed a very consultative approach. These will bring about significant changes in the banking system, so we are proceeding in a very careful and calibrated measure, taking into account suggestions by all stakeholders so that implementation is as non-disruptive as possible," Das said.

Deputy Governor M. Rajeswar Rao said that the RBI had received significant feedback on both project financing and the new liquidity coverage ratio norms. However, he refused to give a definite timeline on the rollout of these norms.

In an interview in October, Governor Shaktikanta Das had said that Indian banks had asked the RBI to either delay or implement the new liquidity coverage ratio norms in a phased manner. "We have received a number of suggestions from banks, the Indian Banks' Association... Some of them want this not to be done at the moment. Some of them want a longer period, longer phasing of the entire thing," Das said.

On Jul. 25, the RBI's draft guidelines--comments on which were invited by Aug. 31--proposed that banks should assign an additional 5% run-off factor to internet and mobile banking-enabled retail deposits. It also proposed, among other changes, tighter norms to value high-quality liquid assets of banks. Currently, banks must maintain high-quality liquid assets worth 100% of their expected outflows for the next 30 days. According to bankers and analysts, the changes proposed by the RBI are seen pushing up expected outflows, an increase in the requirement of high-quality liquid assets--which primarily includes government securities--and finally, lower growth in bank loans.

Informist had exclusively reported in October that the government's Department of Financial Services had written to the RBI to stagger the implementation of the proposed liquidity coverage ratio norms. The new regulations, as per the draft, are to come into effect starting 2025-26 (Apr-Mar).

In the case of project finance norms, too, Informist had exclusively reported, quoting a senior official, that the finance ministry had written to the RBI suggesting a complete rethink on the draft norms which threaten to tighten funding for infrastructure projects.

On May 3, the RBI proposed tighter guidelines on project financing by banks and non-banking finance companies to avoid large defaults on infrastructure loans. As per the draft norms proposed by the central bank, lenders would have to make provisions of up to 5% of the outstanding exposures during construction, as against 0.4% currently, which would be reduced to 2.5% once the asset turns operational.  End

Reported by Kabir Sharma

Edited by Ashish Shirke

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