Summary: The terms of recovery of business loans for infrastructure development purpose have been relaxed by Reserve Bank of India. Now, the the time frame for declaring the project as a sub-standard asset has been reduced to six months.
Infrastructure and the growth of business go hand in hand. Sound infrastructure catalyses growth while lack of infrastructure blocks its road. The disparity in the availability of adequate infrastructure is quite high in India. While states like Punjab, Haryana, Gujurat and Andhra Pradesh are earning rich dividends due to high class infrastructure, states like Orissa, Bihar and Madhya Pradesh are at the bottom of the ladder for the reverse reason.
Infrastructure development is not the sole responsibility of the central or sate Government. Take the example of Punjab- You will conclude that the tremendous development in the infrastructure sector is due to the high level of public private participation. This model should be followed everywhere in India. To make the infrastructure growth significant, Government, public sector banks and private commercial banks should take progressive steps.
It is a fact that delay is a part and parcel of the process of completion of any infrastructure. So, the lending institutions are hesitant to offer business loans for infrastructure development. However Reserve Bank of India (RBI) has recently taken a positive step in this regard. It has relaxed the norm that classified an infrastructure project as a sub-standard asset by banks. Now, RBI has issued guide lines to start recovery on business loans for infrastructure development purpose after two years from the date of completion. Earlier, the exemption time limit was one year. Now, according to the new guide lines, if the industrial projects financed by public or private sector banks are delayed beyond six months from the targeted date of production, the lending institution has to classify them as a sub-standard asset.
The initiative of recognising infrastructure projects as sub-standard started in 2007. Now, RBI has further relaxed this norm to six months. As the terms of declaration are made liberal, the repayment of business loans for infrastructure development has become more easier. In its approach towards the recovery of this type of business loan, RBI has been gracious and has accepted the fact that infrastructure projects are prone to delays which are beyond the control of the borrower. So, there is no point in penalising the borrower for the delay. The new norms will help the infrastructure companies borrow from commercial banks more easily and will directly fuel the infrastructure growth.
How the borrower will be befitted?
Take the example of a road project. The developer borrows from the commercial banks for this reason. He hopes to start collecting toll as soon as the project is completed. But for some unavoidable reasons, the project is delayed. The delay puts the borrower in a helpless condition, and to repay the loan amount, there is no cash flow. In such circumstances, the relaxed term for sub-standard asset declaration comes to rescue. In case of delays in infrastructure projects, the investment of the bank is not classified as NPA.
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