What's the new RBI proposal giving cold sweats to lenders?
New RBI proposal
The Reserve Bank of India (RBI) has proposed stringent new rules for project finance, aiming to minimize risks associated with long-gestation infrastructure projects. These regulations include higher provisioning during construction phases and classification of delayed projects as non-performing assets. However, banks and NBFCs fear these rules may hinder project viability and impede India's capital expenditure momentum.
For quite some time, the Reserve Bank of India (RBI) has been warning against incipient risks in banking. Its hard-hitting actions against HDFC, Paytm, Bajaj Finance and recently against Kotak Mahindra Bank for various non-compliances and regulatory laxities have surprised many who think those were disproportionately harsh. But the RBI has sent the message that it is not willing to take chances even if all seems well.
After chastising several entities over breaches and non-compliance in the past two years, now the RBI has sent a scare through the world of infrastructural finance, which has triggered a tumbling of stocks of many PSU banks and key infrastructure NBFCs such as Power Finance Corp, REC and Indian Renewable Energy Development Agency (IREDA)
