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RBI wary of easing capital rules for loans to infra companies
August 29, 2022
Amid rising interest rates and low capex growth, a pressure is building on the regulator and banks to accept a more flexible capital rule that could soften the rate on infrastructure loans and let lenders fund more projects. The Reserve Bank of India (RBI), however, is unwilling to change the regulations.
Nudged by infrastructure companies and developers, the lobby of lenders recently approached the central bank to let banks assess the risk of an infrastructure company based on its cash flow and nature of counterparties.
For instance, if an energy company has a power purchase pact with NTPC, or any other quasisovereign entity, banks should be allowed to assign a lower risk weight to such a loan exposure once the project execution by the operating company is complete and the plant has begun selling power to the public sector undertaking.
“The argument is that once the power plant is operational, the bank’s ultimate exposure is to NTPC, not the private sector company which operates the plant. And since NTPC would not default, the loan to the private company should ideally carry a lower risk. So, a higher risk weight would apply when the plant is under construction, but a lower one should be allowed when it is operational,” said a senior banker.
A lower risk weight reduces the capital that a bank has to earmark for the loan and to an extent reduces the interest rate for the borrower.
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