Common rules for banks, NBFCs for refinancing project loans: RBI

Reserve Bank of India (RBI) has decided on uniform norms for refinancing of project loans by banks and non-banking finance companies (NBFCs), thereby bringing all rules governing refinancing of project loans, sale of NPA and other regulatory measures common for banks and NBFCs.

This has been done in view of the references received from NBFCs and on the basis of instructions contained in RBI's own circulars issued in February and August 2014 on refinancing of project loans for revitalising stressed assets in the economy, RBI stated in a release.

Accordingly, NBFCs may refinance any existing infrastructure and other project loans by way of take-out financing, without a pre-determined agreement with other lenders, and fix a longer repayment period, the same would not be considered as restructuring.

For loans to be eligible for refinancing,

• NBFCs should ensure that such loans are 'standard' in the books of the existing lenders, and should have not been restructured in the past;
• Such loans should be substantially taken over (more than 50 per cent of the outstanding loan by value) from the existing financing lenders; and
• The Repayment period should be fixed by taking into account the life cycle of the project and cash flows from the project.

For existing project loans where the aggregate exposure of all institutional lenders is minimum Rs1,000 crore, NBFCs may refinance such loans by way of full or partial take-out financing, even without a pre-determined agreement with other lenders, and fix a longer repayment period, and the same would not be considered as restructuring in the books of the existing as well as taking over lenders, if the following conditions are satisfied:

• The project should have started commercial operation after achieving date of commencement of commercial operation (DCCO);
• The repayment period should be fixed by taking into account the life cycle of and cash flows from the project, and, Boards of the existing and new lenders should be satisfied with the viability of the project. Further, the total repayment period should not exceed 85% of the initial economic life of the project / concession period in the case of PPP projects;
• Such loans should be 'standard' in the books of the existing lenders at the time of the refinancing;
• In case of partial take-out, a significant amount of the loan (a minimum 25 per cent of the outstanding loan by value) should be taken over by a new set of lenders from the existing financing lenders; and
• The promoters should bring in additional equity, if required, so as to reduce the debt to make the current debt-equity ratio and Debt Service Coverage Ratio (DSCR) of the project loan acceptable to the NBFCs.

A lender who has extended only working capital finance for a project may be treated as 'new lender' for taking over a part of the project term loan as required under the guidelines.

The above facility will be available only once during the life of the existing project loans.