RBI’s new proposed rule says that at the time of giving cost to the projects, 5% of the total loan should be adjusted in the bank’s account during construction. Public sector banks are also not very happy with this proposed rule and are demanding clarity.
Earlier, the Secretary of the Department of Financial Services had said that the Finance Ministry is studying the proposed rule of RBI.
Banks have appealed to the Finance Ministry regarding the new RBI rule for giving loans to projects. A day before, a high level meeting was held with banks and financial agencies in the Finance Ministry in which all issues related to the banking sector were discussed. In this meeting, the issue of new rules for project finance was raised by the banks.
Banks say that RBI’s new rule will increase the cost of loans for them. This will also affect their profit level. Before banks, non-banking financial companies have also informed the Finance Ministry about their problems regarding RBI’s new rule.
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Banks in dilemma due to new RBI rule
According to the new RBI rule, banks and financial institutions will have to adjust 5% of the loan amount given to the projects from their profits. Banking industry sources have said that this proposal was made by RBI two months ago but there is no clarity about it yet. Due to this there is a lot of confusion. Some banks and financial institutions have postponed the decision to give loans to big projects for the time being. They believe that the decision to give loans should be taken only after there is policy clarity in this regard.
Bank shares fell after the announcement of the new rule
RBI’s new proposed rule says that at the time of providing cost to the project, 5% of the total loan should be adjusted in the bank account during construction. Later, when the project starts, the adjustment ratio will be reduced to 1%. With the introduction of this rule, a huge decline was recorded in the shares of banks and financial institutions in the stock market. Especially a huge decline was seen in public sector NBFCs like PFC, REC and IREDA.
Even government banks are not satisfied
Public sector banks are also not very satisfied with this proposed rule and are demanding clarity. Earlier, the Secretary of the Department of Financial Services had said that the Finance Ministry is studying the proposed rule of RBI. One of the objectives of RBI in bringing this new rule was that the problem of NPA should not arise again in the future due to the pace at which loans are increasing in the country.
RBI’s new rule will be helpful in solving the problem of NPA
After a lot of hard work, India’s banking sector has been able to come out of the NPA problem. Five years ago, the level of gross NPA (in comparison to total advances) was 11 percent which has now come down to less than three percent. On the other hand, the pace of loan has remained at 15-16 percent. There is a risk of NPA increasing again due to more loan distribution. In such a situation, RBI’s new rule will keep the banks ready to deal with the future NPA problem.
