RBI norms to extend 5/25 lending structure soon

KOLKATA: Reserve Bank of India said it would issue operational guidelines to extend the 5/25 lending rule for existing infrastructure projects this week to enable easy repayment and loan restructuring after every five years.

A 5/25 structure allows banks to lend to a project for 25 years, with an option of rewriting the terms of the loan or transferring it to another bank or financial institution after five years. "We will issue the guidelines in a day or two," RBI deputy governor SS Munda said in Kolkata Wednesday.

Such restructuring of loans would enable loan repayment to be co-terminus with cash flows from the projects.

It will also improve debt-servicing capacity and viability of the operational projects. Banks face major asset liability mismatches in longterm project financing.

The 5/25 rule encourages banks to extend long-term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies.

On the liability side, banks are allowed to raise longterm funds for lending to infrastructure sector with minimum regulatory preemption such as cash reserve ratio, statutory liquidity ratio and priority sector lending targets.

Mundra also said that promoters need to bring in "real equity" instead of "perceived equity" to make a project viable.

"Projects with thin equity is like walking on thin ice," he said at a CII event.