RBI/2007-2008/179
DBOD.BP.No.
48/ 21.04.048 /2007-08 November
06, 2007 All
Commercial Banks
(excluding RRBs) Dear
Sir, Project
Finance Portfolio of banks At
the time of financing projects banks generally adopt one of the following methodologies
as far as determining the level of promoters’ equity is concerned. 1)
Promoters bring their entire contribution upfront before the bank starts disbursing
its commitment.
2) Promoters bring certain percentage of their equity (40%
– 50%) upfront and balance is brought in stages.
3) Promoters agree, ab initio,
that they will bring in equity funds proportionately as the banks finance the
debt portion. While
it is appreciated that such decisions are to be taken by the boards of the respective
banks, it has been observed that the last method has greater equity-funding risk. 2.
To contain this risk, banks are advised in their own interest to have a clear
policy regarding the Debt Equity Ratio (DER) and to ensure that the infusion of
equity/fund by promoters should be such that the stipulated level of DER is maintained
at all times. Further they may adopt funding sequences so that possibility of
equity funding by banks is obviated. Yours
faithfully [Prashant
Saran]
Chief General Manager-in-Charge |
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