Mumbai, Oct 29 : The Reserve Bank of India (RBI), in an attempt to remove the financial bottlenecks that hinder the development of infrastructure, on Friday abolished the ceiling on the quantum of term loans that can be granted by banks for a single project.

In its mid-term review of the monetary and credit policy for 1999-2000, the RBI removed the cap of Rs 1,000 crore on loans to individual power projects and Rs 500 crore in case of other projects.

“Banks can now sanction loans to infrastructure projects within the overall ceiling of the prudential exposure norms,” it said in its policy statement.

Banks have also been allowed to exceed the 50 per cent group exposure norm to the extent of 10 per cent provided that the additional exposure is for financing the core sector.

The RBI said it will review the operation of the new guidelines in May 2000 and make further changes to promote this vital sector.

The removal of the cap on exposure to a single project had been on the wish-list of banks and financial institutions (FIs) in the light of increased demand for funds from players in the infrastructure sector, who feel that the allocation of funds within the exposure limits are inadequate to meet their needs.

The demand for funds by the power sector is currently high. In the recent past, banks and FIs have been unable to finance power projects to their full requirments due to restrictions imposed by both the internal prudential norms of these entities and RBI guidelines in this regard.

In April this year, RBI had introduced new norms to accelerate credit disbursement in infrastructure. These guidelines addressed important aspects relating to the financing of core sector projects such as criteria for funding, types of financing, appraisal techniques, regulatory compliance and concerns, administrative arrangements and inter-institutional guarantees. The RBI explained that the measures were intended to facilitate free flow of credit as financing of infrastructure projects is characterised by large capital costs, long gestation periods and high leverage ratios.

The central bank expects the standing coordination committee of banks and FIs set up by the Industrial Development Bank of India (IDBI) for resolving issues related to project financing to improve coordination and reduce delays in providing credit to infrastructure and other sectors.