core loans -- a doubt raised by a candidate for bank interviews

http://www.telegraphindia.com/1141216/jsp/business/story_3788.jsp#.VOHxIPmUeXw Core loan norms relaxed

Our Special Correspondent

Mumbai, Dec. 15: The Reserve Bank today relaxed norms for structuring existing long-term loans to infrastructure projects. The move will not only revive stalled projects but also help banks to tide themselves over mounting bad loans. The new guideline widens the scope of the 5:25 scheme by including existing standard long-term project loans worth over Rs 500 crore to be flexibly structured and refinanced. Under the 5:25 scheme, banks can extend loans to an infrastructure developer for 25 years with an option to rewrite or reset the terms of the loan or transfer it to another bank or financial institution after five years. The latest development will ensure long-term viability of existing projects by aligning the debt repayment obligations with cash flows generated during their economic life, the RBI said in a circular. Many projects were becoming stressed assets for the lenders as they could only offer loans for a maximum period of 12-15 years with a repayment tenor of 10-12 years. This led to higher loan instalments and made the project unviable. Therefore, the RBI had in July allowed banks to flexibly structure loans to new projects. However, the banks demanded the relaxation to be extended to existing projects as well. The apex bank today stipulated that term loans to projects, in which the aggregate exposure of all institutional lenders exceeds Rs 500 crore, would qualify for flexible structuring and refinancing. It added that banks would have to fix a fresh loan amortisation schedule for the existing project loans once during the life time of the project, after the date of commencement of commercial operations, based on the reassessment of the project cash flows. Further, banks have been allowed to not treat them as restructured asset provided the loan is a standard loan (repayments are made on time) as on the date of change of the loan amortisation schedule. The RBI pointed out that the fresh loan amortisation schedule should be within 85 per cent of the initial concession period in case of infrastructure projects under the public-private-partnership model, or 85 per cent of the initial economic life envisaged at the time of project appraisal by lenders in the case of other core industries projects.