Uniform guideline for greenfield financial closure
By A Business Correspondent
In order to ensure uniform interpretation of the term "financial closure", the Reserve Bank of India has come out with a definition of the term. For greenfield projects, financial closure has been defined as "a legally binding commitment of equity holders and debt financiers to provide or mobilise funding for the project. Such funding must account for a significant part of the project cost which should not be less than 90 per cent of the total project cost securing the construction of the facility". The date of financial closure in respect of projects under implementation should be determined accordingly for the purpose of asset classification of such projects, under the extant norms.
In its earlier circular dated February 1, 2002, the RBI had issued guidelines for asset classification regarding projects which are under implementation.
Category I: Projects where financial closure had been achieved and formally documented the two years' time period should be counted from the date of completion of the project, as envisaged at the time of original financial closure. In all such cases, the asset may be treated as standard asset only for a period not exceeding two years beyond the date for completion of the project, as originally envisaged at the time of initial financial closure of the project.
Category II: Projects with original project cost of Rs.100 crore or more, Such projects sanctioned prior to 1997, where the date of financial closure had not been formally documented, an independent group may be constituted with the experts from the lending institutions as well as outside experts in the field which would decide the date of completion of the project. In such cases the asset may be treated as standard asset only for a period not exceeding two years beyond the deemed date of completion of the project, as decided by the group.
Category III: Projects with original project cost of less than Rs 100 crore sanctioned prior to 1997, where the financial closure was not formally documented, the date of commencement of commercial production would be deemed to be the date exactly two years after the date of completion of the project, as originally envisaged as the time of sanction.