Banks to transfer increased project finance provisions – Banking & Finance News

The Reserve Bank of India’s draft guidelines on project financing have stirred up a storm in the infrastructure sector, with lenders warning of potential rise in interest costs for companies. Banks like State Bank of India and Canara Bank have made it clear that any additional costs will be passed on to borrowers.

SBI Chairman Dinesh Khara expressed concerns about the impact of the guidelines on loan pricing, stating that if implemented, the pricing of such loans may need to be revisited. Canara Bank’s MD & CEO, K Satyanarayana Raju, also weighed in, mentioning that while there may be a slight impact on builders’ margins, it will not affect the banks significantly.

Industry leaders like L&T’s CFO R Shankar Raman highlighted the need for regulatory tightening in infrastructure projects, acknowledging the risks associated with selecting the lowest-cost option for projects. However, they also emphasized the long-term benefits of the RBI’s guidelines in bringing stability to the sector.

While the guidelines may lead to short-term impacts such as project delays and investment flow disruptions, they are expected to bring about a high-level of “sanity and rationale” for long-term stability. The phased provisions suggested by the RBI until FY27 aim to ensure that projects are completed within a certain timeframe and meet viability metrics.

Overall, banks are preparing to comply with the proposed norms, with SBI and Canara Bank confident in their ability to absorb the impact without major disruptions. The industry is gearing up for discussions with the regulator to provide feedback on the guidelines and seek clarification on their applicability to different types of loans.