FIDC has requested that no limit be placed on maximum cost overrun which can be funded and it should be left on commercial decision-making.
FinTech BizNews Service
Mumbai, June 11, 2024: RBI has recently issued consolidated guidelines for restructuring of exposures relating to projects under Implementation on account of change in Date of commencement of commercial operations (DCCO).
Finance Industry Development Council has placed following comments on the Draft Guidelines for consideration of RBI, says Mahesh Thakkar, Director General, FIDC:
Draft Guidelines Submission
The dispensations available under
this framework shall be available only
to those lenders who have extended
finance to such project loans based on
a common agreement between the
debtor and the lender(s).
Clarification Sought
We request RBI to clarify whether this
framework will be applicable to loans
which were extended prior to such
guidelines where there is no common
agreement between debtor and the Lender.
Draft Guidelines
In projects financed under consortium arrangements, where the aggregate exposure of the participant lenders to the project is up to Rs1,500 crores, no individual lender shall have an exposure which is less than 10% of the aggregate exposure. For projects where aggregate exposure of lenders is more than Rs. 1,500 crores, this individual exposure floor shall be 5% or Rs150 crores, whichever is higher.
Clarification
We request RBI to not to prescribe minimum limits for financing and let it be decided by commercial agreement between the Parties. The Lenders will be required to be part of an agreement jointly with Debtors. This will ensure that rights and duties of parties will be clear, un-ambiguous and protected.
Draft Guidelines
Any such Credit Event shall be reported to the Central Repository of Information on Large Credit (CRILC) by the lenders in the prescribed weekly as well as the CRILC-Main report in compliance with the extant instructions, as applicable. Lender(s) in a consortium/MBA shall also report occurrence of such credit event to all other members of the consortium/MBA.
Clarification
We submit that the NBFCs do not have access to CRILC. This will mean that there will be lag for such information to come to notice of NBFCs, through other lenders. We request if longstanding industry request of providing access to NBFCs to CRILC to be considered favorably.
Draft Guidelines
Extension of DCCO
Clarification
We request timeline for extension for exogenous and legal reasons be also the same that for endogenous i.e. 2 years.
Draft Guidelines
In cases where lenders have specifically sanctioned a ‘Standby Credit Facility (SBCF) at the time of initial financial closure to fund cost overruns arising on account of extension in DCCO, they may fund cost overruns as per the agreed terms and conditions up to a maximum of 10% of the original project cost.
Clarification
We are of the view that cost over-runs may happen for various reasons including those which are beyond the control of borrowers/lenders. Any cap has the potential of inhibiting the project continuation even after considering extension of DCCO. We, therefore, request that no limit be placed on maximum cost overrun which can be funded and it should be left on commercial decision-making. The suggestion of enhanced provisioning as provided for in paragraph 33 hereinbelow will ensure prudence of the lenders in considering the quantum of additional funding for the project after extension of DCCO.
Draft Guidelines
Construction Phase: A general provision of 5% of the funded outstanding shall be maintained on all existing as well as fresh exposures on a portfolio basis
Clarification
We request that instead of flat provision of 5% for all projects in construction phase, it should continue to be standard provision rate of 0.4%. The enhanced provisioning may be stipulated only for projects where there is a DCCO extension. Such a measure will ensure better project selection by the lenders.
