Road Ministry to oppose a rise in project lending rates

01 May 2024

According to a senior official, the Ministry of Road Transport and Highways intends to maintain current project financing lending rates while soliciting feedback from all relevant parties about the possible consequences of draft guidelines put forth by the Reserve Bank of India (RBI). The ministry will push the central bank to make sure that the nation's infrastructure development does not suffer in terms of cost or speed, and it will oppose any modifications to the rules that would result in higher loan rates. In its capacity as a regulator, the RBI will need to strike that balance to prevent the financial sustainability of road projects from suffering. Earlier this month, the central bank recommended stricter guidelines, mandating that lenders set aside 5% of the project loan amount as general provisions throughout the building phase?an increase from the current 0.4% provisions. To confirm the ministry's perspective on the draft plan, the National Highways Authority of India (NHAI), which is a part of the road ministry, met with members from the National Highway Builders Federation (NHBF) for the first time. More discussions are anticipated in the next few days. According to those with knowledge of the discussions, highway builders believe that the RBI's proposed 5% provision will result in a major increase in the financial burden on organisations responsible for carrying out highway infrastructure projects. This would make it more difficult for finance to reach worthy organisations and people, which would eventually impede economic growth and the development of vital infrastructure projects.

According to the NHBF, agencies may face difficulties because of the strict deadlines for meeting provisioning requirements and funding cost overruns resulting from extensions of the date of commencement of commercial operations (DCCO). This is especially true for infrastructure projects with different timelines and levels of complexity.

In order to give agencies more time to get used to the new provisions and prevent unforeseen financial difficulties, it has proposed a phased approach to the provisioning needs. In order to assist highway builders in streamlining the reporting process without placing undue administrative costs on them, NHBF has also encouraged the central bank to reconsider the terms and circumstances for supporting cost overruns and has requested more clarity in the disclosure requirements.

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