Banks may be allowed to raise stake in troubled projects

Banks could be soon allowed to increase their equity holdings above the current cap of 10 per cent in companies undergoing debt restructuring.

The Reserve Bank of India (RBI) is planning to unveil two measures to enable more productive loan restructuring, governor Raghuram Rajan said in Mumbai on Tuesday. RBI is also considering extending the 5/25 rule for fresh lending.

This rule enables a bank to extend loans to an infra developer for 25 years with an option to rewrite or reset the terms of the loan or transfer it to another bank or financial institution after five years. It ensures that tenure of the loan matches the life cycle of the underlying asset.

"In the next few days, I hope to announce two key relaxations. One is a move towards 5/25 restructuring for existing projects which are standard and also to allow banks to take equity in restructuring to a greater extent than they currently can," Rajan said.