The Reserve Bank of India’s (RBI) proposed norms to tighten project financing, which has recommended an increased standard asset provisioning of up to 5 per cent on loans, is likely to result in an additional provisioning of 0.5-3 per cent of banks net worth.
Last week, the RBI released a draft framework for lenders who undertake project finance. The framework proposed to tighten monitoring and guidelines for restructuring and to maintain a general provision of 5 per cent of the funded outstanding on all existing as well as fresh exposures on a portfolio basis. At present, the standard asset provisioning is 0.4 per cent for project finance.
“We estimate additional provisioning requirements to be 0.5-3 per cent of banks’ net worth and hurt CET1 (Common Equity Tier 1) ratio by 7-30 basis points (bps),’’ IIFL Securities said in a report.
Source: TheIndianExpress
