Flexible Structuring of Existing Long Term Project Loans to Infrastructure and Core Industries

As per the cir­cu­lar DBOD.No.BP.BC.24/21.04.132/2014–15 dat­ed July 15, 2014 on Flex­i­ble Struc­tur­ing of Long Term Project Loans to Infra­struc­ture and Core Industries.

2. In terms of para­graph 9 of the said cir­cu­lar, flex­i­ble struc­tur­ing of project loans with the option of peri­od­ic refi­nanc­ing will be avail­able only to new loans to infra­struc­ture projects and core indus­tries projects sanc­tioned after the date of the circular.
3. In this con­nec­tion, banks have rep­re­sent­ed that such flex­i­ble struc­tur­ing of project loans with the option of peri­od­ic refi­nanc­ing may also be allowed to exist­ing loans to infra­struc­ture projects and core indus­tries projects, as it would ensure long term via­bil­i­ty of exist­ing infrastructure/core indus­tries sec­tor projects by align­ing the debt repay­ment oblig­a­tions with cash flows gen­er­at­ed dur­ing their eco­nom­ic life.
4. The issues have been exam­ined by the Reserve Bank of India (RBI). Accord­ing­ly, it has been decid­ed to allow the banks to flex­i­bly struc­ture the exist­ing project loans to infra­struc­ture projects and core indus­tries projects with the option to peri­od­i­cal­ly refi­nance the same as per the norms giv­en below:
5. i) Only term loans to projects, in which the aggre­gate expo­sure of all insti­tu­tion­al lenders exceeds Rs.500 crore, in the infra­struc­ture sec­tor (as defined under the Har­monised Mas­ter List of Infra­struc­ture of RBI) and in the core indus­tries sec­tor (includ­ed in the Index of Eight Core Indus­tries (base: 2004-05) pub­lished by the Min­istry of Com­merce and Indus­try, Gov­ern­ment of India) will qual­i­fy for such flex­i­ble struc­tur­ing and refinancing;
6. ii) Banks may fix a Fresh Loan Amor­ti­sa­tion Sched­ule for theexist­ing project loansonce dur­ing the life time of the project, after the date of com­mence­ment of com­mer­cial oper­a­tions (DCCO), based on the reassess­ment of the project cash flows, with­out this being treat­ed as ‘restruc­tur­ing’ provided:
7. The loan is a stan­dard loan as on the date of change of loan amor­ti­sa­tion schedule;
8. Net present val­ue of the loan remains same before and after the change in loan amor­ti­sa­tion schedule;
9. The Fresh Loan Amor­ti­sa­tion Sched­ule should be with­in 85 per cent (leav­ing a tail of 15 per cent) of the ini­tial con­ces­sion peri­od in case of infra­struc­ture projects under pub­lic pri­vate part­ner­ship (PPP) mod­el; or 85 per cent of the ini­tial eco­nom­ic life envis­aged at the time of project appraisal for deter­min­ing the user charges / tar­iff in case of non-PPP infra­struc­ture projects; or 85 per cent of the ini­tial eco­nom­ic life envis­aged at the time of project appraisal by Lenders Inde­pen­dent Engi­neer in the case of oth­er core indus­tries projects; and
10. The via­bil­i­ty of the project is reassessed by the bank and vet­ted by the Inde­pen­dent Eval­u­a­tion Com­mit­tee con­sti­tut­ed under the aegis of the Frame­work for Revi­tal­is­ing Dis­tressed Assets in the Econ­o­my dat­ed Jan­u­ary 30, 2014 and com­mu­ni­cat­ed to the banks by Indi­an Banks Asso­ci­a­tion vide its cir­cu­lar No. C&I/CIR/2013–14/9307 dat­ed April 29, 2014.

iii) If a project loan is clas­si­fied as ‘restruc­tured stan­dard’ asset as on the date of fix­ing the Fresh Loan Amor­ti­sa­tion Sched­ule as per para 4 (ii) above, while the cur­rent exer­cise of fix­ing the Fresh Loan Amor­ti­sa­tion Sched­ule may not be treat­ed as an event of ‘repeat­ed restruc­tur­ing’, the loan should con­tin­ue to be clas­si­fied as ‘restruc­tured stan­dard’ asset. Upgra­da­tion of such assets would be gov­erned by the extant pru­den­tial guide­lines on restruc­tur­ing of accounts tak­ing into account the Fresh Loan Amor­ti­sa­tion Schedule;

1. iv) Any sub­se­quent changes to the above men­tioned Fresh Loan Amor­ti­sa­tion Sched­ule will be gov­erned by the extant restruc­tur­ing norms;
2. v) Banks may refi­nance the project term loan peri­od­i­cal­ly (say 5 to 7 years) after the project has com­menced com­mer­cial oper­a­tions. The repayment(s) at the end of each refi­nanc­ing peri­od (equal in val­ue to the remain­ing resid­ual pay­ments cor­re­spond­ing to the Fresh Loan Amor­ti­sa­tion Sched­ule) could be struc­tured as a bul­let repay­ment, with the intent spec­i­fied up front that it will be refi­nanced. The refi­nance may be tak­en up by the same lender or a set of new lenders, or com­bi­na­tion of both, or by issue of cor­po­rate bond, as refi­nanc­ing debt facil­i­ty, and such refi­nanc­ing may repeat till the end of the Fresh Loan Amor­ti­sa­tion Sched­ule. The pro­vi­so regard­ing net present val­ue as at para­graph 4(ii) would not be applic­a­ble at the time of peri­od­ic refi­nanc­ing of the project term loan;
3. vi) If the project term loan or refi­nanc­ing debt facil­i­ty becomes a non-per­form­ing asset (NPA) at any stage, fur­ther refi­nanc­ing should stop and the bank which holds the loan when it becomes NPA would be required to recog­nise the loan as such and make nec­es­sary pro­vi­sions as required under the extant reg­u­la­tions. Once the account comes out of NPA sta­tus, it will be eli­gi­ble for refi­nanc­ing in terms of these instructions;

vii) Banks may deter­mine the pric­ing of the loans at each stage of the project term loan or refi­nanc­ing debt facil­i­ty, com­men­su­rate with the risk at each phase of the loan, and such pric­ing should not be below the Base Rate of the bank;

viii) Banks should secure their inter­est by way of prop­er doc­u­men­ta­tion and secu­ri­ty cre­ation, etc.;

1. ix) Banks will be ini­tial­ly allowed to count the cash flows from peri­od­ic amor­ti­sa­tions of loans as also the bul­let repay­ment of the out­stand­ing debt at the end of each refi­nanc­ing peri­od for their asset-lia­bil­i­ty man­age­ment; how­ev­er, with expe­ri­ence gained, banks will be required in due course to con­duct behav­iour­al stud­ies of cash flows in such amor­ti­sa­tion of loans and plot them accord­ing­ly in ALM statements;
2. x) Banks should recog­nise from a risk man­age­ment per­spec­tive that there will be a prob­a­bil­i­ty that the loan will not be refi­nanced by oth­er banks, and should take this into account when esti­mat­ing liq­uid­i­ty needs as well as stress sce­nar­ios; and
3. xi) Banks should have a Board approved pol­i­cy for such financing.
4. It is clar­i­fied that banks may also pro­vide longer loan amor­ti­sa­tion as per the above frame­work of flex­i­ble struc­tur­ing of project loans to exist­ing project loans to infra­struc­ture and core indus­tries projects which are clas­si­fied as ‘non-per­form­ing assets’. How­ev­er, such an exer­cise would be treat­ed as ‘restruc­tur­ing’ and the assets would con­tin­ue to be treat­ed as ‘non-per­form­ing asset’. Such accounts may be upgrad­ed only when all the out­stand­ing loan/facilities in the account per­form sat­is­fac­to­ri­ly dur­ing the ‘spec­i­fied peri­od’ (as defined in the extant pru­den­tial guide­lines on restruc­tur­ing of accounts), i.e. prin­ci­pal and inter­est on all facil­i­ties in the account are ser­viced as per terms of pay­ment dur­ing that peri­od. How­ev­er, peri­od­ic refi­nance facil­i­ty would be per­mit­ted only when the account is clas­si­fied as ‘stan­dard’ as pre­scribed in the para 4 (vi) above.
5. It is reit­er­at­ed that the exer­cise of flex­i­ble struc­tur­ing and refi­nanc­ing should be car­ried out only after DCCO. Fur­ther, our instruc­tions on ‘take-out finance’ (cir­cu­lar dat­ed Feb­ru­ary 29, 2000), ‘trans­fer of bor­row­al accounts’ (cir­cu­lar dat­ed May 10, 2012), ‘refi­nanc­ing of project loans by way of par­tial takeover’ (cir­cu­lars dat­ed Feb­ru­ary 26, 2014andAugust 7, 2014) and one of the con­di­tions (Para 15.2.2 (iii)of Mas­ter Cir­cu­lar on Pru­den­tial norms on Income Recog­ni­tion, Asset Clas­si­fi­ca­tion and Pro­vi­sion­ing per­tain­ing to Advances dat­ed July 1, 2014, viz., “The repay­ment peri­od of the restruc­tured advance includ­ing the mora­to­ri­um, if any, does not exceed 15 years in the case of infra­struc­ture advances and 10 years in the case of oth­er advances”)  for avail­ing spe­cial asset class ben­e­fits under restruc­tur­ing guide­lines will cease to be applic­a­ble on any loan to infra­struc­ture and core indus­tries projects cov­ered under the ambit of this circular.
6. RBI will review these instruc­tions at peri­od­ic intervals.