RBI eases lending norms for infrastructure sector

The change of guard at the helm of the largest democracy in the world has raised hopes of change for all including those focused primarily on the infrastructure sector. In a bold move, the finance minister of India, Arun Jaitley, in the government’s maiden budget, set the tone for a regulatory framework to revitalize the scenario of infrastructure financing in the country.

Operational guidelines

Pursuant to the finance minister’s speech, the Reserve Bank of India (RBI) has issued instructions in the form of operational guidelines specifying the norms for infrastructure financing in India. These instructions were issued with the objective of mitigating the asset-liability management problems faced by Indian banks in extending long-term project loans to infrastructure and core industry sectors and to ease the burden of raising long-term debt for project loans to infrastructure sectors.

From now on, banks will be more inclined to schedule longer amortization periods for project loans given that a definitive regulatory framework for infrastructure financing appears to have been put in place. New loans to infrastructure projects and core industries can be split in a 5/25 structure where banks can fix the amortization period for a 25-year term, but structure it as a five to seven year loan with an option to roll it over at the end of that period.

Khaitan Sud & Partners is a fast growing law firm providing specialist legal services to both domestic and international clients. Bhumika Tripathi is an associate at the firm.