Loans to PPP projects with model concession agreements to be treated as secured: RBI

The Reserve Bank today said the debts of infrastructure projects implemented under PPP mode and having model concession agreements (MCA) will now be treated as secured lending.

"It has been decided that in case of PPP projects, the debts due to the lenders may be considered as secured to the extent assured by the project authority in terms of the Concession Agreement," it said in a circular.

RBI noted that certainty has been brought in due to MCA published by the Planning Commission, which has been adopted by several ministries and state governments.

It, however, said that to be qualified as a secured lending, the borrower will have to adhere to certain norms like depositing the user charges in an escrow account, where senior lenders have priority over withdrawals.

The circular also said that there should be sufficient risk mitigation measures like pre-determined increase in user charges or increase in concession period, in case project revenues are lower than anticipated.

Additionally, the lenders should have a right to trigger termination in case of default in debt service, it said.