Government asked RBI it to consider classifying loans to the infrastructure sector as secured

The government has argued that most of these projects are formed through the private public participation (PPP) route and have implicit government support.
“There is little cause for these loans turning into non-performing assets. Further, the payment towards these loans is made through the escrow , from which the principal amount is given to the lender first,” said a finance ministry official, who did not wish to be named. As of now each bank, depending on funds available and internal prudent lending standards, puts a cap on the exposure it can take in the unsecured loan category.
“Government wants banks to increase their exposure specially towards telecom and road projects, but stakeholders are wary, if the exposure of banks in unsecured category is high, besides, if these loans turn bad, the provisioning norms are also different,” said an senior banker.
A secured lending classification for infrastructure lending will help banks lend more. “Currently, we maintain around 20-30% of unsecured portfolio. Classifying them as secured will give us the head room to take more exposure,” said the head of a leading public sector bank.
According to RBI norms, banks have to make a provisioning of 20% in the first year, if unsecured loans goes bad or becomes non-performing asset in banking parlance. The provisioning amount goes up to 100% in the second year for unsecured NPAs. In the case of secured loans, 10% provisioning requirements are to made in the first year.
The government is looking at increasing lending to the infrastructure sector. It is also promoting the take-out finance scheme for funding long term infrastructure projects.





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