SBI sets out to make infra loans costlier

State Bank of India (SBI) has initiated a new project funding regime by incorporating a clause in its loan documents that enables it to pass on any increased costs resulting from tighter provisioning regulations to the borrower. \r

The Reserve Bank of India (RBI) proposed comprehensive draft guidelines on project loan financing and accounting in early May, suggesting a 5% provision on infrastructure and commercial real estate under construction, which banks, including SBI, and companies have lobbied against. SBI anticipates needing an additional provision of Rs 9,000 crore if the RBI doesn't relax the norms, indicating that it doesn't expect major relaxation. \r

While most banks have clauses allowing term changes in line with regulatory amendments, SBI's explicit mention of this clause suggests readiness for impending changes. \r

The RBI aims to implement the new guidelines by March 2025, with banks expressing limited ability to absorb increased provisions amidst intense competition and borrower loan refinancing practices.