RBI eases norms for PPP infrastructure projects

Giving relief to the infrastructure sector, the Reserve Bank of India (RBI) has decided to treat loans for infrastructure companies implementing public private partnership (PPP) projects as secured subjected to certain conditions. Pursuant to which, the borrowing cost for infrastructure companies implementing these projects could come down as the lenders may be considered as secured to the extent assured by the project authority.

The central bank, in its notification issued to banks, has said that most of the projects in India are user-charge based for which the Planning Commission has published Model Concession Agreements (MCAs). The PPP projects have been adopted by various Ministries and State Governments and thus provide adequate comfort to the lenders regarding security of their debt. In view of the above features, it has been decided that in case of PPP projects, the debts due to the lenders may be considered as secured to the extent assured by the project authority in terms of the Concession Agreement. 

However, as per the existing guidelines, annuities received under Build-Operate-Transfer (BOT) model for road/highway projects, there are provisions to compensate the project sponsor if a certain level of traffic is not achieved, to be treated as tangible securities.

The government has identified the development of infrastructure a most critical prerequisite for sustaining the current growth momentum of the economy. The pace of development in the infrastructure sector lingers to a great extent on the investments made and timely execution of the projects.

Further, investment in existing and new infrastructure projects involves high risks, low returns, huge capital, high incremental capital/ output ratio, long payback periods as well as superior technology. Hence, in order to bring in adequate resources for setting up of a sound and efficient infrastructural base, the government has entered into the 'Public Private Partnership (PPP)' programme.