The above is just a draft guideline by RBI. RBI has increase | ECONOMY by VIVEK SINGH

The above is just a draft guideline by RBI.

RBI has increased the provisioning required for Project finance (loans for which there is no additional collateral and the lenders expect to receive the principal and interest payment only from the specific project revenues to which the lender has provided loan).

Because of increase in provisioning requirement, Lenders will have to keep an additional amount for any future losses due to loans given for project finance (which are risky). So, due to provisioning, the account books of banks will change.... students don't need to go in detail as it requires an understanding of accounting concepts, but let me just put it in simple words.

Suppose a bank did provisioning of Rs. 100 crore amount then this amount will be subtracted from the income statement (as loss) and the same will be adjusted in the balance sheet of the bank due to which 'Common Equity Tier 1 capital' will get reduced which will result in reduction in 'Capital Adequacy Ratio (CAR)' [which is includes Tier 1 capital on numerator] and it also increases banks cost (of lending) as this much amount can't be lent.