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K.R. Srivats

New Delhi, Jan 6 The Finance Ministry has taken the view that advances to infrastructure projects that face completion delay exceeding a year need not be classified as non-performing assets (NPAs) by banks so long as the interest component on the loan was being serviced.

This stance is, however, in contrast to the Reserve Bank of India (RBI) guidelines that require advances to infrastructure projects delayed by more than a year to be classified as NPAs even if interest was being paid on time.

Official sources said this issue had come up for discussion at the meeting that the Finance Minister, Mr P. Chidambaram, had with chief executives of public sector banks (PSBs) here on Friday. Indications are that the RBI may again be requested to review the guidelines.

“Our view on this is that the account cannot be classified as NPA in situations of delay over one year if the interest is serviced,” a senior Finance Ministry official told Business Line.

Bankers had twice in the past approached RBI to consider reviewing its guidelines as the actual progress in the implementation of projects was not allowed to be taken into consideration.

They had suggested that the RBI guidelines needed to be applied on a case-to-case basis and where delay was not attributed to promoters and the financial viability was intact, the account may not be classified as NPA.

The existing RBI guidelines required the principal to be classified as NPAs even if interest is being received on time.

But the RBI had on both occasions rejected the suggestion, stating that any “attenuation in the norms for reckoning NPA status of infrastructure projects may lead to dilution of credit discipline and could affect the projects viability and result in the deterioration of asset quality across the banking system”. The RBI felt that the modification in the asset classification norms for infrastructure projects as suggested was not considered desirable, sources in banking industry said.

More Stories on : Non-Performing Assets | Financial Policy | RBI & Other Central Banks

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