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New rules for project finance has been proposed by RBI

Published on May 10, 2024
Current Context: The Reserve Bank of India (RBI) proposed new rules for project finance in early May 2024. The main goal is to manage risks associated with infrastructure projects that take a long time to complete.
New rules for project finance has been proposed by RBI
  • Here are some key features of the proposed rules:
    • Higher provisioning during construction: Banks would need to set aside more money (up to 5%) as a buffer against potential loan defaults during the construction phase of a project. This is significantly higher than the current requirement.
    • Provisioning linked to project stage: The amount of money set aside would decrease as the project progresses to operational stages.
    • Stricter timelines for NPA classification: Projects facing delays of more than six months from the planned completion date could be classified as non-performing assets (NPAs).

Question:

Q.1 What is the main goal of the RBI’s proposed new rules for project finance?
a. To increase the profitability of banks
b. To increase the number of non-performing assets (NPAs)
c. To decrease the number of infrastructure projects
d. To manage risks associated with long-term infrastructure projects
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