RBI/2012-13/445
DBOD.BP.BC.No. 83/08.12.014/2012-13
March 18, 2013
All Scheduled Commercial Banks
(excluding RRBs)
Dear Sir,
Prudential norms on Advances to Infrastructure Sector
In terms of our circular DBOD.No.BP.BC.125/21.04.048/2008-09 dated April 17, 2009 on ˜Prudential Norms on Unsecured Advances™ rights, licenses, authorization, etc., charged to the banks as collateral in respect of projects (including infrastructure projects) should not be reckoned as tangible security. However, it was observed that infrastructure projects, especially road/highway projects, are special in nature where asset created by bank finance cannot be pledged/mortgaged to the bank but certain rights to receive annuities / toll collection from the assets can be hypothecated to the lenders.
2. In view of the above, banks have been allowed, vide our circular DBOD.No.BP.BC.96/08.12.014/2009-10 dated April 23, 2010 on ˜Prudential Norms on Advances to Infrastructure Sector™ to treat annuities under Build-Operate-Transfer (BOT) model in respect of road/highway projects and toll collection rights, where there are provisions to compensate the project sponsor if a certain level of traffic is not achieved, as tangible securities. This is subject to the condition that banks™ right to receive annuities and toll collection rights is legally enforceable and irrevocable.
3. It has been brought to our notice that most of the projects in India are user-charge based for which the Planning Commission has published Model Concession Agreements (MCAs). These have been adopted by various Ministries and State Governments for their respective public-private partnership (PPP) projects and they provide adequate comfort to the lenders regarding security of their debt. In view of the above features, it has been decided that in case of PPP projects, the debts due to the lenders may be considered as secured to the extent assured by the project authority in terms of the Concession Agreement, subject to the following conditions:
- User charges/toll/tariff payments are kept in an escrow account where senior lenders have priority over withdrawals by the concessionaire;
- There is sufficient risk mitigation, such as pre-determined increase in user charges or increase in concession period, in case project revenues are lower than anticipated;
- The lenders have a right of substitution in case of concessionaire default;
- The lenders have a right to trigger termination in case of default in debt service; and
- Upon termination, the Project Authority has an obligation of (i) compulsory buy-out and (ii) repayment of debt due in a pre-determined manner.
In all such cases, banks must satisfy themselves about the legal enforceability of the provisions of the tripartite agreement and factor in their past experience with such contracts.
Yours faithfully,
(Sudha Damodar)
Chief General Manager
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Related Circulars
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RBI/2008-09/434
DBOD.No.BP.BC. 125 /21.04.048/2008-09
April 17, 2009
The Chairman / CMD / MD / CEO
All Scheduled Commercial Banks (including Local Area Banks)
(Excluding RRBs)
Dear Sir
Prudential Norms on Unsecured Advances
Please refer to paragraph 5.4 of the Master Circular DBOD.No.BP.BC. 20/21.04.048/2008-09 dated July 1, 2008, on prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances, which, inter alia, defines ˜Unsecured Exposure™ and ˜Security™
2. In order to enhance transparency and ensure correct reflection of the unsecured advances in Schedule 9 of the banks™ balance sheet, it is advised as under:
a) For determining the amount of unsecured advances for reflecting in schedule 9 of the published balance sheet, the rights, licenses, authorisations, etc., charged to the banks as collateral in respect of projects (including infrastructure projects) financed by them, should not be reckoned as tangible security. Hence such advances shall be reckoned as unsecured.
b) Banks should also disclose the total amount of advances for which intangible securities such as charge over the rights, licenses, authority, etc. has been taken as also the estimated value of such intangible collateral. The disclosure may be made under a separate head in Notes to Accounts. This would differentiate such loans from other entirely unsecured loans.
3. This circular would be applicable from the financial year 2009-10 onwards.
Yours faithfully
(Prashant Saran)
Chief General Manager-in- Charge
RBI/2009-10/421
DBOD No. BP.BC. 96 / 08.12.014/ 2009-10
April 23, 2010
All Scheduled Commercial Banks
(excluding RRBs)
Dear Sir,
Prudential norms on Advances to Infrastructure Sector
Please refer to paragraphs 96 and 97 of the Annual Policy Statement for the year 2010-11 (extract enclosed) wherein it has been proposed (i) to treat annuities and toll collection rights as tangible securities, and (ii) to reduce the provisioning required on unsecured infrastructure loan accounts classified as sub-standard to 15 per cent.
2. In terms of paragraph 2(a) of our circular DBOD.No.BP.BC.125/21.04.048/2008-09 dated April 17, 2009 on ˜Prudential Norms on Unsecured Advances™, rights, licenses, authorizations, etc. charged to banks as collateral in respect of projects (including infrastructure projects) should not be reckoned as tangible security. In partial modification to the above it has been decided that banks may treat annuities under build-operate-transfer (BOT) model in respect of road/highway projects and toll collection rights, where there are provisions to compensate the project sponsor if a certain level of traffic is not achieved, as tangible securities subject to the condition that banks™ right to receive annuities and toll collection rights is legally enforceable and irrevocable.
3. In terms of paragraph 6 of our circular No.DBOD.BP.BC.97/ 21.04.141/ 2003-04 dated June 17, 2004 on ˜Prudential Guidelines on Unsecured Exposures™ it is stipulated that unsecured exposures identified as sub- standard would attract additional provision of 10 per cent, i.e., a total of 20 per cent on the outstanding balance. In view of certain safeguards such as escrow accounts available in respect of infrastructure lending, it has been decided that infrastructure loan accounts which are classified as sub-standard will attract a provisioning of 15 per cent instead of the current prescription of 20 per cent. To avail of this benefit of lower provisioning, the banks should have in place an appropriate mechanism to escrow the cash flows and also have a clear and legal first claim on these cash flows.
Yours faithfully
(B. Mahapatra)
Chief General Manager
Extract of paragraphs 96 and 97 of the Annual Policy Statement for the year 2010-11
96. In terms of extant instructions, rights, licenses and authorisations of borrowers, charged to banks as collateral in respect of project loans (including infrastructure projects) are not eligible for being reckoned as tangible security for the purpose of classifying an advance as secured loan. As toll collection rights and annuities in the case of road/highway projects confer certain material benefits to lenders, it is proposed:
to treat annuities under build-operate-transfer (BOT) model in respect of road/highway projects and toll collection rights, where there are provisions to compensate the project sponsor if a certain level of traffic is not achieved, as tangible securities subject to the condition that banks™ right to receive annuities and toll collection rights is legally enforceable and irrevocable.
97. Till June 2004, the Reserve Bank had prescribed a limit on banks™ unsecured exposures. As a step towards deregulation, the above limit was withdrawn to enable banks™ Boards to formulate their own policies on unsecured exposures. The provisioning requirement for unsecured sub-standard exposures, however, was increased to 20 per cent consequent to the withdrawal of limits on banks™ unsecured exposures (the provisioning requirement for secured sub-standard exposures stands at 10 per cent). In view of certain safeguards such as escrow accounts available in respect of infrastructure lending, it is proposed that:
infrastructure loan accounts classified as sub-standard will attract a provisioning of 15 per cent instead of the current prescription of 20 per cent. To avail of this benefit of lower provisioning, banks should have in place an appropriate mechanism to escrow the cash flows and also have a clear and legal first claim on such cash flows.
