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CAIIB Super Notes: If you are preparing for CAIIB- these are a must-have. Visit http://sirfbusiness.blogspot.com for more info.
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CAIIB – Super-Notes © M S Ahluwalia Sirf Business
RBI Guidelines on Financing of Infrastructure Projects
Module C: Project and Infrastructure Finance
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
CAIIB – SUPER NOTES
Corporate Banking: RBI Guidelines on Financing of Infrastructure Projects
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Contents
Coverage:
1. Introduction
2. RBI Guidelines on Appraisal and
Finance of Infrastructure projects:
1. Types of Financing by Banks
2. Appraisal
3. Prudential Requirements
4. Take-Out Financing/Liquidity
Support
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
INTRODUCTION
1.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Infrastructure Sector
Distinct Features:
• Exceptionally long implementation, gestation and payback
periods
• High debt equity ratio
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Infrastructure Sector
Definition as per Section 10 of the Income Tax Act:
• Roads
• Bridges
• Power
• Transport
• Telecommunications
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
RBI GUIDELINES ON APPRAISAL AND FINANCE OF INFRASTRUCTURE PROJECTS
2.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Types of Financing by Banks
Credit Facilities
• WC Finance
• Term/Project Loan
• Other Fund and Non Fund Based Facilities
Credit Facilities
• WC Finance
• Term/Project Loan
• Other Fund and Non Fund Based Facilities
Deemed Advance
• Subscription to Bonds, Debentures, Preference/Equity Shares
Deemed Advance
• Subscription to Bonds, Debentures, Preference/Equity Shares
Take-Out Financing Take-Out Financing
Inter-Institutional Guarantees
Inter-Institutional Guarantees
Financing Promoter’s Equity
Financing Promoter’s Equity
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Conditions for Financing Promoter’s Equity
Only for acquisition of shares of existing
companies providing infrastructure facilities
Only for acquisition of shares of existing
companies providing infrastructure facilities
Financed entity should have satisfactory net
worth
Financed entity should have satisfactory net
worth
The financed entity/directors thereof
should not be in defaulter’s list
The financed entity/directors thereof
should not be in defaulter’s list
Restricted to 50% of the finance required for
acquiring the promoter’s stake
Restricted to 50% of the finance required for
acquiring the promoter’s stake
Security of Assets of the borrowing/ acquired
company
Security of Assets of the borrowing/ acquired
company
Maintenance of stipulated margins should be ensured
Maintenance of stipulated margins should be ensured
Tenor <= 7 years. Exceptions may be made
by Bank Board
Tenor <= 7 years. Exceptions may be made
by Bank Board
Compliance with Statutory requirements –
S. 19(2) of the Banking Regulation Act, 1949
Compliance with Statutory requirements –
S. 19(2) of the Banking Regulation Act, 1949
Should be within aggregate ceiling of 40% of their Net Worth as on March 31 of previous FY
Should be within aggregate ceiling of 40% of their Net Worth as on March 31 of previous FY
Proposal should have approval of the Bank
Board
Proposal should have approval of the Bank
Board
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Appraisal
• In case of infrastructure projects undertaken by Govt. owned
entities banks/FIs should undertake due diligence on viability of the
projects.
– State Govt guarantees may not be taken as a substitute for satisfactory
credit appraisal.
• Since specialised appraisal skills are required banks/FIs may
consider constituting appropriate screening committees/special
cells for appraisal of projects and monitoring the
progress/performance of the projects.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Prudential Requirements
Prudential Credit Exposure Limits
Prudential Credit Exposure Limits
• Group – 50%of bank’s TCF
• Single Borrower – 20% of bank’s TCF
• May consider additional 5% over and above the above
• Appropriate Disclosures should be made in the ‘Notes on Account’ in case limits are exceeded
Assignment of Risk Weight
Assignment of Risk Weight
• For Capital Adequacy Purpose
Asset Liability Management Asset Liability Management
• Exercise due vigil on Asset Liability position to ensure liquidity mismatches do not occur
Administrative Arrangements Administrative Arrangements
• Timely and Adequate Delivery of Credit
• Ongoing monitoring of the project implementation
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Take-out Financing
• An arrangement whereby banks financing the infrastructure
projects can transfer the outstandings in their books to IDFC
or other financial institution on a pre-determined basis.
• Helps banks to avoid ALM mismatches
• Different formats have been devised by IDFC and SBI for the
purpose
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Liquidity Support from IDFC
• IDFC would commit at the point of sanction, to refinance the
entire outstanding loan (principal + unrecovered interest) or
part of the loan, to the bank after an agreed period.
• Credit Risk would be taken by the bank
• Interest rate on the refinanced amount would depend on
IDFC’s risk perception of the bank
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
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Just mark an email to [email protected]
CAIIB – Super-Notes © M S Ahluwalia Sirf Business For more Super-Notes: Click Here
M S Ahluwalia, amongst other things, is a visual artist, blogger,
blog designer and of course an MBA and Banker from New
Delhi, India.
To know more about him you may visit his blog-site: Estudiante De La Vida
