The Reserve Bank of India (RBI) plans to come out with guidelines for banks on refinancing existing infrastructure projects, Deputy Governor S. S. Mundhra said here on Wednesday.
In July, norms were put in place by the central bank for new infrastructure projects and affordable housing in response to representations made by banks, which were facing difficulties in providing long-tenor financing owing to asset-liability mismatch.
Banks needed the flexibility to structure loans to mitigate risks as well as to ensure easy refinancing. Called the 5/25 system, this structure allowed banks to rewrite the terms of the loan of an asset (whose life may be of 25 years) every five years for the duration of the asset’s life cycle.
Efforts were now on to issue guidelines for existing projects too, Mr. Mundhra said.
Pointing out that getting finance was easy in India, Mr. Mundra cautioned industry against having thin equity. “This is like skating on thin ice… things become tricky when the economy slows down and then projects falter and signs of distress creep in,” he observed at an interactive meeting with the microfinance sector, organised by the Confederation of Indian Industry.
For the highly-leveraged companies, banks might demand higher equity before offering fresh loans, it was learnt.
Mr. Mundhra also advised banks as well as corporates not to live on a quarter-to-quarter basis as this often led to mindless chasing of profits and lowering of safeguards. “Quarter-to-quarter chasing can be detrimental to the health of business,” he observed.
On rate cuts
On the possibility of rate cuts, he said there was room for rate cuts in case inflation was reined in. Food prices were lower and oil prices were easing, he said, adding that uncertainties on factors such as monsoon would have to be taken cognisance of.
“RBI’s policy rests on five major planks, which included monetary policy, whose main component was inflation targeting.”
The central bank was keen to introduce more players in the market place, and by April, it hoped to issue licences for new category banks (payment banks). Universal banking licences would also be available on tap soon against the earlier practice of giving then out once in a decade.
