What changed
Earlier, any project (including infrastructure) turning sub-standard if commercial production started more than 6 months after the original completion date. Now, for infrastructure projects only, this grace period is doubled to 1 year. The change applies from March 31, 2007.
What it means for you
Banks financing infrastructure can now tolerate longer delays—up to one year—before the loan slips to sub-standard. This reduces pressure to immediately classify large infra exposures as NPAs due to common regulatory/land acquisition delays. However, the date of completion must still be fixed at financial closure.
What you must do
- Update your asset classification policy for infrastructure loans to reflect the 1-year grace period instead of 6 months.
- Ensure project completion dates are clearly recorded at financial closure for all new infrastructure financing.
- Review existing infrastructure accounts where commercial production is delayed beyond 6 months but within 1 year; reclassify only if delay exceeds 1 year.
- Train credit teams on the revised sub-standard trigger for infrastructure projects.
Who it affects
All scheduled commercial banks (excluding RRBs) financing infrastructure projects, Credit risk and NPA monitoring teams, Infrastructure project promoters and borrowers
Does this relaxation apply to non-infrastructure projects?
No. The 1-year grace period is only for infrastructure projects. All other projects continue with the earlier 6-month rule.
From when is this change effective?
The revised instructions are effective from March 31, 2007.
What if the delay is due to promoter inefficiency, not external factors?
The circular does not differentiate causes; it applies uniformly to all infrastructure project delays. Banks should still assess the root cause for provisioning.