Vinu: Hey Manu, I've been looking over this new RBI draft framework for project financing. There are some significant changes here, aren't there?

Manu: Absolutely. The RBI seems focused on streamlining the process and mitigating risk. Let's break down some of the key points.

Vinu: Okay, one thing that stood out was this 'minimum share in consortium' rule. Can you elaborate on that?

Manu: Right. It seems that in consortium lending arrangements, no single lender can have an exposure of less than 10% of the total exposure where the total project lending is up to Rs. 1500 crores. For projects exceeding that amount, the floor is either 5% or Rs. 150 crores, whichever is higher.

Vinu: That makes sense; it encourages more balanced risk distribution in larger projects. Now, what about the policy for resolving stress on the occurrence of a credit event?

Manu: The RBI mandates a board-approved policy. This means that lenders involved in project financing must have well-defined procedures for handling unforeseen credit issues. Essentially, it promotes proactive risk management.

Vinu: Interesting. Have they revised provisioning norms as well?

Manu: Yes. There's a general provision of 5% of the funded outstanding to be maintained across all project exposures, both fresh and existing. This acts as a buffer against potential losses.

Vinu: I see. I also noticed a stipulated repayment schedule mentioned in the framework. What's the deal with that?

Manu: Repayments need to be completed within a maximum of 85% of the project's life. This ensures loan repayment happens within a reasonable timeframe while the project is still generating revenue.

Vinu: Speaking of timelines, there were some changes to how moratoriums are handled, right?

Manu: That's correct. Moratoriums cannot extend beyond the DCCO [Date of Commencement of Commercial Operations]. If a moratorium is granted, then it's limited to a maximum of six months after the DCCO. This encourages timely project completion.

Vinu: Got it. One last thing – I saw a mention of NPV. Could you explain how that factors into the new IRAC norms?

Manu: The Net Present Value (NPV) of the cash flows related to the project will be considered in the assessment process. Essentially, the RBI wants to ensure the project has solid economic viability, boosting the chances of successful loan repayment.

Vinu: This seems like a comprehensive overhaul. What do you think the overall impact of this draft framework will be?

Manu: I think the RBI is aiming for a more prudent and risk-conscious approach to project financing. These changes should enhance transparency and make the funding process smoother for projects with sound fundamentals.