February 2, 2024

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

Long-term loans, like those for 25 years, given to infrastructure or core industry projects, need to be structured carefully. First, we must ensure the project is financially viable. This includes checking if it can pay its interest and repay the loan over its lifetime. We can allow these loans to be paid back over a long period, like 25 years, but they may need to be refinanced periodically.

When assessing a project, if it seems financially sound over 25 years, we can initially fund it for a shorter period, say 5 years. After this, the remaining debt can be refinanced by either the same or new lenders, or through bonds. This refinancing will be based on the original payment schedule and will happen every five years.

For new long-term projects in infrastructure and core industries, we will follow these guidelines:

We’ll finance only those projects that fall under specific categories defined by the Reserve Bank and the Ministry of Commerce and Industry. This includes sectors like coal, oil, natural gas, and electricity, among others.
We’ll set a payment schedule based on robust financial assessments, even under stress. The payment period should not exceed 80% of the project’s expected life.
The loan will initially be for a medium term, like 5 to 7 years, covering construction and the start of operations. The repayment at this stage will be a lump sum, planned to be refinanced later.
If there’s a delay in the project, we can adjust the payment schedule without it being considered a restructuring, under certain conditions.
We can modify the loan payment schedule once based on the project’s actual performance, without it being seen as restructuring.
If a loan or its refinancing turns into a non-performing asset (NPA), refinancing will stop. It can resume once the loan is no longer an NPA.
We’ll set loan prices at each stage, based on the risk. We’ll also ensure proper documentation and security.
Initially, we’ll count the loan payments for our asset-liability management. Over time, we’ll study these payment patterns more closely.
We must be prepared for the possibility that a loan might not be refinanced and plan our liquidity accordingly.
We need a Board-approved policy for this kind of financing.

We can also apply these flexible structuring and refinancing norms to existing loans for infrastructure and core industries. However, there are specific conditions:

This applies to term loans exceeding ₹500 crore in the infrastructure and core industries sectors.
We can reset the loan payment schedule once based on reassessed cash flows, without it being considered restructuring.
If a loan is already restructured, it will continue to be treated as such. Any further changes will follow existing norms.
We can refinance these loans periodically, following the same rules as new loans.
The same rules about NPAs, loan pricing, documentation, and asset-liability management apply here too.

Finally, we can offer longer loan payment periods under these guidelines even for existing loans that are NPAs. However, this will be treated as restructuring, and the loan will remain an NPA until it shows satisfactory performance.

It’s important to note that these flexible structuring and refinancing options are only available after the project has started operations. Also, a specific condition related to the repayment period under restructuring guidelines will no longer apply to loans covered by these instructions.

In case of delays in project completion, we allow a 5% extension beyond the 80% limit of the project’s economic life when setting the original payment schedule. This should be considered when planning the loan structure.

Introduction to RBI – NBFC Scale Based Regulation

Regulations applicable for NBFC-BL

Regulations applicable for NBFC-ML

Regulatory Instructions for NBFC-UL

Directions for NBFC – Micro Finance MFIs

Specific Directions for NBFC-Factors and NBFC-ICCs

Specific Directions for Infrastructure Debt Funds IDFs-NBFC

Scoring Methodology for Identification of NBFC as NBFC-UL

Regulatory Guidance on Implementation of Ind AS by NBFCsv

Norms on Restructuring of Advances by NBFCs

Early Recognition of Financial Distress

Guidelines on Liquidity Risk Management Framework