Certainly! The Reserve Bank of India (RBI) has proposed new guidelines that would impact loans provided by banks to the construction and infrastructure sectors. Here’s a breakdown of the key points:
1. **Loan Growth**: Over the past five years, loans extended by banks to the construction and infrastructure sectors have increased significantly. According to RBI data, loans to these sectors have grown by 30% from Rs 10.8 trillion in January 2019 to Rs 14.6 trillion in March of the current year.
2. **Provisioning Requirement**: The RBI’s proposed guidelines suggest imposing provisions on both existing and new project loans. This includes setting aside up to 5% of the exposure during the construction phase of the project.
3. **Impact on Bankers**: Bankers are expressing concerns about the growth prospects of infrastructure loans due to the proposed provisioning requirements. They fear that the high provisioning norms could lead to lower returns on project finance and reduce the appetite for providing loans to the infrastructure sector.
4. **Guideline Details**: Under the draft guidelines, banks would need to set aside 5% of the exposure during the construction phase. As the project becomes operational, these provisions can be gradually reduced to 2.5% of the funded outstanding, and further down to 1% under certain conditions.
5. **Applicability**: The proposed guidelines apply to all commercial banks, including small finance banks and non-banking financial companies (NBFCs).
6. **Sector-wise Loan Growth**: Bank loans to the construction sector have increased by nearly 26% over the past five years, rising from Rs 1.08 trillion in January 2019 to Rs 1.4 trillion in March of the current year. Loans to the infrastructure sector have grown by almost 31% during the same period, increasing from Rs 9.8 trillion to Rs 12.8 trillion.
7. **Response from Banks**: Banks are currently assessing the implications of these proposed guidelines and will submit their feedback to the RBI.
