What changed
Previously (2009), rights, licenses, and authorizations charged as collateral were not considered tangible security. In 2010, annuities under BOT road/highway projects and toll collection rights with traffic compensation were allowed as tangible security. Now (2013), for PPP projects with Model Concession Agreements, loans can be considered secured to the extent assured by the project authority, subject to conditions like escrow accounts, risk mitigation, lender substitution rights, and compulsory buy-out.
What it means for you
Banks can now classify PPP infrastructure loans as secured, reducing provisioning requirements and improving asset quality. This encourages lending to road/highway and other user-charge projects by providing clearer security recognition. Lenders must verify legal enforceability of tripartite agreements and assess past contract experience.
What you must do
- Review existing and new PPP loan agreements to ensure they include escrow accounts, risk mitigation clauses, substitution rights, and termination triggers.
- Verify that project authorities have compulsory buy-out and debt repayment obligations upon termination.
- Assess legal enforceability of tripartite agreements and document past experience with similar contracts.
- Update internal credit policies to reflect secured treatment for qualifying PPP infrastructure loans.
Who it affects
Scheduled commercial banks (excluding RRBs), Infrastructure lenders financing PPP projects, Project authorities and concessionaires in road/highway and user-charge sectors
What types of projects qualify for this secured treatment?
Public-private partnership (PPP) projects with Model Concession Agreements adopted by ministries or state governments, especially user-charge based projects like roads and highways.
What are the key conditions for treating loans as secured?
User charges must be in an escrow account with senior lender priority; risk mitigation like pre-determined tariff hikes; lender substitution and termination rights; and project authority obligation for compulsory buy-out and debt repayment.
Does this apply to all infrastructure loans?
No, it specifically applies to PPP projects meeting the conditions. Other infrastructure loans without such concession agreements remain subject to earlier norms on unsecured advances.