What changed
Previously, if an infrastructure project financed after May 28, 2002, began commercial production more than one year after its scheduled completion date, it was classified as sub-standard. Now, the threshold has been doubled to two years, effective from March 31, 2008. The change applies only to infrastructure projects and not to other advances.
What it means for you
Banks can now give infrastructure borrowers an additional year before tagging the account as sub-standard, reducing immediate provisioning pressure for delays beyond the original completion date. This aligns with industry representations that many delays are due to legal or external factors beyond the borrower's control. However, banks must still ensure the original completion date is clearly documented at financial closure.
What you must do
- Update internal asset classification policies for infrastructure loans to reflect the new two-year grace period effective March 31, 2008.
- Ensure that the original project completion date is clearly recorded in loan documentation at financial closure for all new infrastructure advances.
- Review existing infrastructure accounts where the delay is between one and two years to reclassify them from sub-standard to standard if they meet the revised criteria.
- Communicate the revised norms to credit and risk teams handling infrastructure project financing.
Who it affects
All scheduled commercial banks (excluding Local Area Banks and RRBs), Infrastructure project borrowers, Bank credit and risk management teams
Does this change apply to projects financed before May 28, 2002?
No, the circular specifically applies to infrastructure projects financed by banks after May 28, 2002.
What happens if the delay exceeds two years?
If commercial production does not start within two years after the original completion date, the account must be classified as sub-standard as per the revised norms.