With a view to meet the increasing finance needs for infrastructure sector, the Reserve Bank of India in its annual policy for 2010-11 has proposed to reduce provisioning on infrastructure loan accounts classified as sub standard to 15% from its current 20%.

RBI said that “In order to give a further thrust to infrastructure financing by banks, some further measures are felt necessary.” It added that 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.

The RBI also proposed to allow banks to classify their investments in non-SLR bonds issued by companies engaged in infrastructure activities and having a minimum residual maturity of seven years under the held to maturity category. It said that “Investment in non SLR debt securities by banks where the security is proposed to be listed on the Exchange may be considered as investment in listed security at the time of making investment.”

The RBI said that it is keen to facilitate adequate flow of bank credit to infrastructure and in terms of extant instructions, rights, licenses and authorizations of borrowers, charged to banks as collateral in respect of project loans are not eligible for being reckoned as tangible security for the purpose of classifying an advance as secured loan.

It said that “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 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.”

(Sourced from constructionweekonline.in)