Key Points
So, this 5% provisioning requirement, which is specified with this circular, in our view is applicable only for the projects which are taking a DCCO extension and not for all the projects which are under construction..
Another positive which we are seeing in the circular is that as per our understanding, the 5% provisioning which was there in the earlier guidelines for the projects who have taken a DCCO extension beyond two years, now the current guidelines allow that reduction in the provisioning from 5% to 2.5% and to 1% if the project commences the COD and also repays the debt to the extent of 20%..
So that way, we believe that it is positive for the bank's riskiness; if there is a DCCO extension, then you increase the provision that will also force the lenders as well as the borrowers to possibly fix up a DCCO which is more realistic and you do not take a leeway in terms of a DCCO extension which is available let us say up to two years without additional provision...
So, one, that the DCCO portfolio for the banks will not be very high or the lenders will not be very high; we are not talking about entire under construction portfolio of the lenders, we are talking only on the portfolio which would have availed DCCO extension and we should be mindful of that in the last few years if we leave aside maybe the thermal power or the roads which have been a long gestation projects and are more prone to DCCO extension, the recent expansions have largely been in the renewable energy space or let us say projects which are less prone to maybe DCCO extension...
First given the market reaction, there could be a case where maybe more clarification can emerge as to whether 5% provision requirement is on the entire under-construction portfolio of the lenders because our reading is that it is only for the cases where the project is under construction and has sought a DCCO extension...
