Millennium Post

‘Banks likely to be allowed to up stake in troubled projects’

The central bank is planning to unveil two measures to enable more productive loan restructuring, he said, adding that it is also mulling extending the 5/25 rule for fresh lending. This rule enables a bank to extend loans to an infra developer for 25 years with an option to rewrite or reset the terms of the loan or transfer it to another bank or financial institution after five years. It ensures that tenure of the loan matches the life cycle of the underlying asset. "In the next few days, I hope to announce two key relaxations. One is a move towards 5/25 restructuring for existing projects which are standard and also to allow banks to take equity in restructuring to a greater extent than they currently can," Rajan said.

"There is a substantial financial stress in some sectors. We have been taking a holistic view instead of a sector by sector approach keeping in mind the need for a financial restructuring while limiting the extent of forbearance," he said.

Finance Minister Arun Jaitley had in the Budget proposed that he would ease the financing structure for infrastructure projects by introducing the 5/25 rule which allows to let bank to lend money to a developer for up to 25 years.

Bad loans and restructured loans together constitute more than 10.4 per cent of the banking system assets as of the September quarter, with some state-run banks like Central Bank having such dud assets over 20 per cent, while nearly half of them have it between 15 per cent and 19 per cent.

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