State Bank of India (SBI), the largest lender in the country, has initiated a new project funding system that includes a loan clause allowing it to transfer any increase in costs resulting from tighter provisioning regulations to the borrower. Despite industry opposition to this move, the bank’s loan document now explicitly states that if regulatory changes require SBI to make higher provisions, the additional cost will be passed on to the borrower. This gives the bank the authority to raise interest rates even after approving a loan at a specific rate. In early May, the Reserve Bank of India (RBI) issued comprehensive draft guidelines on project loan financing and accounting. These guidelines propose that banks set aside 5% as provisions for infrastructure and commercial real estate projects under construction, with the provision gradually decreasing once the project is operational.
