Executive Summary:
This circular from the Reserve Bank of India (RBI), dated February 7, 2020, harmonizes guidelines for the deferment of the Date of Commencement of Commercial Operations (DCCO) for projects in non-infrastructure and Commercial Real Estate (CRE) sectors. It revises guidelines for deferment of DCCO for CRE projects, outlining conditions under which revisions and restructuring can occur without impacting asset classification. It also emphasizes compliance with the Real Estate Regulation and Development Act, 2016.
Key Points / Main Content:
Revised DCCO Guidelines for CRE Projects:
* Revision of DCCO within one year of the original DCCO is not considered restructuring if all other loan terms remain unchanged.
* For CRE projects delayed beyond the promoter's control, banks may restructure by revising DCCO up to another year beyond the initial one-year period and retain standard asset classification if the account is serviced as per revised terms.
* Revised repayment schedules should not exceed the extension in DCCO when restructuring such loans.
* Cost overruns due to DCCO extensions within specified limits can be funded, subject to existing RBI circulars.
Asset Classification and Restructuring Conditions:
* A project loan can be classified as NPA before commencement of operations if overdue for 90 days.
* Restructuring applications must be received before the expiry of the initial one-year period and while the account is still standard.
Responsibilities of Banks:
* Bank Boards must assess project viability and restructuring plans when extending DCCO.
* All other restructuring, income recognition, asset classification, and provisioning norms apply.
* Banks must ensure compliance with the Real Estate Regulation and Development Act, 2016.
Identification of CRE Sector Project Loans:
* Project loans to CRE sector shall be identified on the basis of existing RBI circulars.
Impact Analysis:
Scheduled Commercial Banks (excluding RRBs) and Small Finance Banks:
Impact: These banks are directly affected by the revised guidelines for managing project loans in the CRE sector, especially concerning income recognition, asset classification, and provisioning.
Action Required: Banks need to revise their internal policies and procedures to align with these harmonized guidelines, ensuring compliance with the conditions for DCCO deferment and restructuring. They must also ensure compliance with the Real Estate Regulation and Development Act, 2016.
Promoters of CRE Projects:
Impact: The revised guidelines offer more flexibility in managing project timelines and potential delays, potentially preventing projects from being classified as Non-Performing Assets (NPAs).
Action Required: Promoters need to adhere to the conditions specified for DCCO deferment and ensure timely servicing of loans under the revised terms to maintain standard asset classification. They should also apply for restructuring before the expiry of the initial one-year period if facing delays beyond their control.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking system.
Scheduled Commercial Banks: Banks in India that are listed in the Second Schedule of the Reserve Bank of India Act, 1934.
Small Finance Banks: A type of niche bank in India licensed by the Reserve Bank of India to provide basic banking services to underserved populations.
Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances: Guidelines issued by the Reserve Bank of India related to the classification of assets and provisioning for advances made by banks.
Date of Commencement of Commercial Operations (DCCO): The planned date for a project to begin commercial operations.
Commercial Real Estate (CRE): Real estate used for business activities.
Non-Performing Asset (NPA): A loan or advance for which principal or interest payment remained overdue for a period of 90 days.
Real Estate Regulation and Development Act, 2016: An Act of the Parliament of India which seeks to protect home-buyers as well as help boost investments in the real estate industry.
भारतीय �रजवर् ब�क
__________________RESERVE BANK OF INDIA _________________
www.rbi.org.in
RBI/2019-20/158
DOR.No.BP.BC.33/21.04.048/2019-20 February 07, 2020
The Chairman / Chief Executive Officer
All Scheduled Commercial Banks (excluding RRBs)
All Small Finance Banks
Madam/Dear Sir,
Prudential Norms on Income Recognition, Asset Classification and Provisioning
Pertaining to Advances - Projects under Implementation
Please refer to the circular DBR.No.BP.BC.84/21.04.048/2014-15 dated April 6, 2015 on
the subject. It has been decided to harmonise the guidelines for deferment of date of
commencement of commercial operations (DCCO) for projects in non-infrastructure and
commercial real estate (CRE) sectors. Accordingly, the revised guidelines for deferment of
DCCO for CRE projects are as under:
i. Revisions of the date 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 one year from the original DCCO
stipulated at the time of financial closure for CRE projects; and
b. All other terms and conditions of the loan remain unchanged.
ii. In case of CRE projects delayed for reasons beyond the control of promoter(s),
banks may restructure them by way of revision of DCCO up to another one year
(beyond the one-year period quoted at paragraph i (a) above) and retain the
‘standard’ asset classification if the account continues to be serviced as per the
revised terms and conditions under the restructuring.
iii. Banks while restructuring such CRE project loans under instructions at (ii) above will
have to ensure that the revised repayment schedule is extended only by a period
equal to or shorter than the extension in DCCO.2
iv. Banks may fund cost overruns that arise on account of extension of DCCO (within
the limits at (i) and (ii) above), subject to the instructions issued vide circular
DBOD.No.BP.BC.33/21.04.048/2014-15 dated August 14, 2014 and the mailbox
clarification dated April 20, 2016.
v. 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 (ii) above is subject to the
condition that the application for restructuring should be received before the expiry
of period mentioned at paragraph (i) (a) above and when the account is still standard
as per record of recovery.
vi. At the time of extending DCCO, Boards of banks should satisfy themselves about
the viability of the project and the restructuring plan.
vii. All other aspects related to restructuring, income recognition, asset classification,
provisioning as applicable for projects under implementation shall continue to apply.
viii. Banks shall ensure that all provisions of the Real Estate (Regulation and
Development) Act, 2016 are complied with.
2. The project loans to CRE sector shall be identified on the basis of instructions issued
vide circulars DBOD.BP.BC.No.42/08.12.015/2009-10 dated September 9, 2009 and
DBOD.BP.BC. No.104/08.12.015/2012-13 dated June 21, 2013.
Yours faithfully
(Saurav Sinha)
Chief General Manager-in-Charge