REC, PFC shares plunge following RBI’s direction on prudential framework applicable to financing of project loans
Upstox
2 min read • Updated: May 6, 2024, 11:55 AM
Summary
According to RBI, a general provision of 5% of the funded outstanding has to be maintained on all existing as well as fresh exposures on a portfolio basis. The provisioning for standard assets during the construction phase should be achieved in a phased manner as per a prescribed timeline.
Shares of REC and PFC fell over 9% on Monday morning after the Reserve Bank of India (RBI) announced the draft direction on the prudential framework applicable to financing project loans. Shares of IREDA, too, fell close to 4%.
The regulator said that in projects financed under consortium arrangements where the aggregate exposure of the participant lenders to the project is up to ₹1,500 crore, an individual lender should not have an exposure of less than 10% of the aggregate exposure. At the same time, for projects where the aggregate exposure of lenders is more than ₹1,500 crore, the individual exposure floor will be 5% or ₹150 crore, whichever is higher.
According to the apex bank, a general provision of 5% of the funded outstanding has to be maintained on all existing as well as fresh exposures on a portfolio basis. The provisioning for standard assets during the construction phase should be achieved in a phased manner as per a prescribed timeline.
According to the timeline, 2% provisioning should be done with effect from March 31, 2025 while 3.50% provisioning will come into effect from March 31, 2026. The 5% provisioning should be done with effect from March 31, 2027.
The RBI also said that accounts that have availed date of commencement of commercial operations (DCCO) deferment, are classified as ‘standard,’ and wherein the cumulative deferments are more than two years and one year for infrastructure and non-infrastructure projects respectively, lenders should maintain additional specific provisions of 2.5% over and above the applicable standard asset provision. This additional provision of 2.5% shall be reversed on commencement of commercial operation, the regulator said.
Non-compliance with any of the provisions contained in the directions will attract supervisory and enforcement action, the RBI said.
Shares of PFC and REC have gained over 8.5% and 19%, respectively, since the beginning of the year.