Other Issues
(i) All other aspects of restructuring of project loans before commencement of commercial operations would be governed by the provisions of Part B of Master Circular on Prudential norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances. Restructuring of project loans after commencement of commercial operations will also be governed by these instructions.
(ii) Any change in the repayment schedule of a project loan caused due to an increase in the project outlay on account of increase in scope and size of the project, would not be treated as restructuring if:
(a) The increase in scope and size of the project takes place before commencement of commercial operations of the existing project.
(b) The rise in cost excluding any cost-overrun in respect of the original project is 25% or more of the original outlay.
(c) The bank re-assesses the viability of the project before approving the enhancement of scope and fixing a fresh DCCP.
(d) On re-rating, (if already rated) the new rating is not below the previous rating by more than one notch.
(iii) Project loans for Commercial Real Estate
CRE projects mere extension of DCCO would not be considered as restructuring, if the revised DCCO falls within the period of one year from the original DCCO and there is no change in other terms and conditions except possible shift of the repayment schedule and servicing of the loan by equal or shorter duration compared to the period by which DCCO has been extended. However, the asset classification benefit would not be available to CRE projects if they are restructured.
(iv) Multiple revisions of the DCCO and consequential shift in repayment schedule for equal or shorter duration (including the start date and end date of revised repayment schedule) will be treated as a single event of restructuring provided that the revised DCCO is fixed within the respective time limits stipulated at paragraphs 4.2.15.3 (iii) and 4.2.15.4 (iii) of the Master Circular No. RBI/2015-16/101DBR.No.BP.BC.2/21.04.048/2015-16 on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances, dated July 1, 2015 and all other terms and conditions of the loan remained unchanged.
(v) Banks, if deemed fit, may extend DCCO beyond the respective time limits stipulated at paragraphs 4.2.15.3 (iii) and 4.2.15.4 (iii) of the Master Circular No. RBI/2015-16/101 DBR.No.BP.BC.2/21.04.048/2015-16 on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances, dated July 1, 2015; however, in that case, banks will not be able to retain the ‘standard’ asset classification status of such loan accounts.
(vi) In all the above cases of restructuring where regulatory forbearance has been extended, the Boards of banks should satisfy themselves about the viability of the project and the restructuring plan.
(i) The RBI vide its Circular No. RBI/2014-15/182 DBOB .No.BP.BC.33/21.04.048/2014-15 dated August 14, 2014 on “Prudential Norms on Income Recognition, Assets Classification and Provisioning Pertaining to Advances – Project under Implementation” mentions that banks have represented to RBI that in respect of funding of cost overruns, which may arise on account of extension of DCCO within the above (i.e.; two years and one year for infrastructure and non-infrastructure projects from original DCCO date with other terms and conditions remain unchanged), time limits may be allowed without treating the loans as restructured.
(ii) In cases where banks have specifically sanctioned a ‘standby facility’ at the
time of initial financial closure to fund cost overruns, they may fund cost
overruns as per the agreed terms and conditions.
(iii) In cases Where the initial financial closure does not envisage such financing of cost overruns, based on the representations from banks, it has been decided to allow banks to fund cost overruns, which may arise on account of extension of DCCO within the time limits quoted at paragraph (i) above, without treating the loans as ‘restructured asset’ subject to the following conditions:
(a) Banks may fund additional ‘Interest during Construction’, which may arise on account of delay in completion of a project;
(b) Other cost overruns (excluding Interest during Construction) up to a maximum of 10% of the original project cost
(c) Debt Equity Ratio as agreed at the time of initial financial closure should remain unchanged subsequent to funding cost overruns or improve in favour of the lenders and the revised Debt Service Coverage Ratio should be acceptable to the lenders
(d) Disbursement of funds for cost overruns should start only after the Sponsors/Promoters bring in their share of funding of the cost overruns; and
(e) All other terms and conditions of the loan should remain unchanged or enhanced in favour of the lenders.