The Reserve Bank of India on Friday said that non-banking finance companies (NBFCs) can fund cost overruns, which may arise on account of extension of date of commencement of commercial operations of infrastructure and non-infrastructure projects, within specified time limits.

In cases where NBFCs have specifically sanctioned a ‘standby facility’ at the time of initial financial closure (of infrastructure and non-infrastructure projects) but the same does not envisage financing of cost overruns, the RBI has allowed them to fund cost overruns.

NBFCs can fund cost overruns without treating the loans as a ‘restructured asset’ subject to conditions — they may fund additional ‘Interest During Construction’, which may arise on account of delay in completion of a project; fund other cost overruns up to a maximum of 10 per cent of the original project cost.

The other conditions are: the debt-equity ratio agreed at the time of initial financial closure should remain unchanged subsequent to funding cost overruns, or improve in favour of the lenders; and disbursement of funds for cost overruns should start only after the sponsors/promoters bring in their share of funding of the cost overruns.

According to current guidelines, revisions of the date of commencement of commercial operations (DCCO) and consequential shift in repayment schedule for equal or shorter duration will not be treated as restructuring.

This is subject to the revised DCCO falling within a period of two years and one year from the original DCCO stipulated at the time of financial closure for infrastructure projects and non-infrastructure projects, respectively.

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