The finance ministry has asked the Reserve Bank of India to review the project appraisal norms followed by banks and financial institutions, with respect to the experience of BPL Mobile Cellular Ltd and ICICI Bank.
The move is aimed at addressing the concerns raised by borrowers about the time taken in project appraisals and subsequent delays in achieving financial closure.
BPL Cellular recently told Finance Minister Jaswant Singh that it was facing inordinate delays in achieving financial closure as its project cost had jumped from Rs 2,660 crore (Rs 26.6 billion) to Rs 3,240 crore (Rs 32.4 billion) -- an increase of over 25 per cent. It said the viability of the project was reduced, while the interest burden had increased 35 per cent.
ICICI Bank, which was the lead institution in the project, listed the problems BPL had to face. It said there was uncertainty over the merger with Idea Cellular, uncertainty over AT&T's interest in BPL, a dispute between the shareholders of BPL Communication that delayed the infusion of required base equity and problems with vendor financing.
The delay occurred in the period between April 2000 and April 2002.
Senior government sources said BPL Cellular's experience would be used as a case study to pinpoint avoidable delays in the entire appraisal process.
"It was felt that since it is imperative for banks and financial institutions to take prompt action in the conduct of project appraisals, both in the interest of viability of the projects and the confidence of applicants in our banking institutions, BPL's case may be treated as a test case to find the cause of delay on the part of both borrowers and financial institutions," the sources said.
They added that after discussions with the finance minister it was felt that the RBI, after a thorough assessment of BPL's case, should advice the government on where avoidable delays had occurred and how these could be best addressed.
Based on the RBI's assessment, banks and financial institutions would be advised to streamline their guidelines for appraising projects in future.