Circular No. DBOD.No.BP.BC.33/21.04.048/2014-15 dated 14 August, 2014, states that:
Revisions of the date of commencement of commercial operations (DCCO) and consequential shift in repayment schedule for equal or shorter duration (including the start date and end date of revised repayment schedule) will not be treated as restructuring provided that:
- The revised DCCO falls within the period of two years and one year from the original DCCO stipulated at the time of financial closure for infrastructure projects and non-infrastructure projects respectively; and
- All other terms and conditions of the loan remain unchanged.
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Projects under implementation
For all projects financed by the FIs/ banks , the ‘Date of Completion’ and the ‘Date of Commencement of Commercial Operations’ (DCCO), of the project should be clearly spelt out at the time of financial closure of the project and the same should be formally documented. These should also be documented in the appraisal note by the bank during sanction of the loan.
Project Loans
There are occasions when the completion of projects is delayed for legal and other extraneous reasons like delays in Government approvals etc. All these factors, which are beyond the control of the promoters, may lead to delay in project implementation and involve restructuring / reschedulement of loans by banks. Accordingly, the following asset classification norms would apply to the project loans before commencement of commercial operations.
For this purpose, all project loans have been divided into the following two categories:
(a) Project Loans for infrastructure sector
(b) Project Loans for non-infrastructure sector
For the purpose of these guidelines, ‘Project Loan’ would mean any term loan which has been extended for the purpose of setting up of an economic venture. Further, Infrastructure Sector is a sector as defined in extant Harmonised Master List of Infrastructure of RBI.
Deferment of DCCO
i) Deferment of DCCO and consequential shift in repayment schedule for equal or shorter duration (including the start date and end date of revised repayment schedule) will not be treated as restructuring provided that:
(a) The revised DCCO falls within the period of two years and one year from the original DCCO stipulated at the time of financial closure for infrastructure projects and non-infrastructure projects (including commercial real estate projects) respectively; and
(b) All other terms and conditions of the loan remain unchanged.
As such project loans will be treated as standard assets in all respects, they will attract standard asset provision of 0.40 per cent.
ii) Banks may restructure project loans, by way of revision of DCCO beyond the time limits quoted at paragraph (i) (a) above and retain the ‘standard’ asset classification, if the fresh DCCO is fixed within the following limits, and the account continues to be serviced as per the restructured terms:
(a) Infrastructure Projects involving court cases
Up to another two years (beyond the two year period quoted at paragraph 1(a) above, i.e., total extension of four years), in case the reason for extension of DCCO is arbitration proceedings or a court case.
(b) Infrastructure Projects delayed for other reasons beyond the control of promoters
Up to another one year (beyond the two year period quoted at paragraph 1(a) above, i.e., total extension of three years), in case the reason for extension of DCCO is beyond the control of promoters (other than court cases).
(c) Project Loans for Non-Infrastructure Sector
(Other than Commercial Real Estate Exposures)
Up to another one year (beyond the one year period quoted at paragraph 1(a) above, i.e., total extension of two years).
iii) The asset classification benefits provided at paragraph 4.2.15.3 (ii) are not applicable to commercial real estate sector.
iv) It is re-iterated that a loan for a project may be classified as NPA during any time before commencement of commercial operations as per record of recovery (90 days overdue). It is further re-iterated that the dispensation at paragraph 4.2.15.3 (ii) is subject to the condition that the application for restructuring should be received before the expiry of period mentioned at paragraph 4.2.15.3 (i) (a) above and when the account is still standard as per record of recovery.
(v) In case of infrastructure projects under implementation, where Appointed Date (as defined in the concession agreement) is shifted due to the inability of the Concession Authority to comply with the requisite conditions, change in date of commencement of commercial operations (DCCO) need not be treated as ‘restructuring’.
Projects under Implementation – Change in Ownership
i. In order to facilitate revival of the projects stalled primarily due to inadequacies of the current promoters, if a change in ownership takes place any time during the periods quoted in paragraphs 4.2.15.3 above or before the original DCCO, banks may permit extension of the DCCO of the project up to two years in addition to the periods quoted at paragraph 4.2.15.3 above, as the case may be, without any change in asset classification of the account subject to the conditions stipulated in the following paragraphs. Banks may also consequentially shift/extend repayment schedule, if required, by an equal or shorter duration.
ii. In cases where change in ownership and extension of DCCO (as indicated in paragraph 4.2.15.5 (i) above) takes place before the original DCCO, and if the project fails to commence commercial operations by the extended DCCO, the project will be eligible for further extension of DCCO in terms of guidelines quoted at paragraph 4.2.15.3 above. Similarly, where change in ownership and extension of DCCO takes place during the period quoted in paragraph 4.2.15.3 (i) above, the account may still be restructured by extension of DCCO in terms of guidelines quoted at paragraph 4.2.15.3 (ii) above, without classifying the account as non-performing asset.
iii. The provisions of paragraphs 4.2.15.4 (i) and 4.2.15.4 (ii) above are subject to the following conditions:
a) Banks should establish that implementation of the project is stalled/affected primarily due to inadequacies of the current promoters/management and with a change in ownership there is a very high probability of commencement of commercial operations by the project within the extended period;
b) The project in consideration should be taken-over/acquired by a new promoter/promoter group with sufficient expertise in the field of operation. If the acquisition is being carried out by a special purpose vehicle (domestic or overseas), the bank should be able to clearly demonstrate that the acquiring entity is part of a new promoter group with sufficient expertise in the field of operation;
c) The new promoters should own at least 51 per cent of the paid up equity capital of stake in the acquired project. If the new promoter is a non-resident, and in sectors where the ceiling on foreign investment is less than 51 per cent, the new promoter should own atleast 26 per cent of the paid up equity capital or up to applicable foreign investment limit, whichever is higher, provided banks are satisfied that with this equity stake the new non-resident promoter controls the management of the project;
d) Viability of the project should be established to the satisfaction of the banks.
e) Intra-group business restructuring/mergers/acquisitions and/or takeover/acquisition of the project by other entities/subsidiaries/associates etc. (domestic as well as overseas), belonging to the existing promoter/promoter group will not qualify for this facility. The banks should clearly establish that the acquirer does not belong to the existing promoter group;
f) Asset classification of the account as on the ‘reference date’ would continue during the extended period. For this purpose, the ‘reference date’ would be the date of execution of preliminary binding agreement between the parties to the transaction, provided that the acquisition/takeover of ownership as per the provisions of law/regulations governing such acquisition/takeover is completed within a period of 90 days from the date of execution of preliminary binding agreement. During the intervening period, the usual asset classification norms would continue to apply. If the change in ownership is not completed within 90 days from the preliminary binding agreement, the ‘reference date’ would be the effective date of acquisition/takeover as per the provisions of law/regulations governing such acquisition/takeover;
g) The new owners/promoters are expected to demonstrate their commitment by bringing in substantial portion of additional monies required to complete the project within the extended time period. As such, treatment of financing of cost overruns for the project shall be subject to the guidelines prescribed in paragraph 13 of this circular. Financing of cost overrun beyond the ceiling prescribed in paragraph 13 of this circular would be treated as an event of restructuring even if the extension of DCCO is within the limits prescribed above;
h) While considering the extension of DCCO (up to an additional period of 2 years) for the benefits envisaged hereinabove, banks shall make sure that the repayment schedule does not extend beyond 85 per cent of the economic life/concession period of the project; and
i) This facility would be available to a project only once and will not be available during subsequent change in ownership, if any.
iv. Loans covered under this guideline would attract provisioning as per the extant provisioning norms depending upon their asset classification status.