Banks to demand rejig in Infra loans to MSMEs

Earlier this month, RBI proposed to MSME financers to set aside provisions for infrastructure projects, further issuing draft guidelines. It said that banks should set aside a provision of 5% of the loan amount when the project is in the construction phase, 2.5% when a project becomes operational and 1?ter the project starts generating cash sufficient to cover the lenders' repayment requirements.

The proposed changes required banks to allocate 40% of their credit to priority sector and free up capital for extending credit to industrially vibrant sectors, fostering economic growth. The RBI also wants the bank to have a clear visibility on the date on which project is expected to begin commercial operations and increase provisions accordingly.

According to a study, the top five industries that drive credit growth for banks are large industry (about 20%), housing (about 15%), NBFCs (about 10%), trade (about 6%) and vehicle loans (about 4%).

However, the latest news is that the banks wants a rejig in the infra lending rules and are planning to write to RBI and finance Ministry to exempt MSMEs from proposed rules for provisioning for infrastructure project financing, alongside inquiring whether the norms are for all projects or is applicable for projects above a certain amount.