The Reserve Bank of India’s proposals on project finance will not have a big impact on Union Bank of India's financials and the position will be "manageable" even if the draft is implemented in the current form, the lender’s managing director and CEO A Manimekhalai said.

About 28% of the bank’s Rs 2.96 lakh crore corporate loan book is project finance loans at present. According to Manimekhalai, 68% of the overall project finance loans are already completed and have started showing operational profitability.

Also, the phased implementation of the provisioning requirements proposed by the RBI means that immediate impact of these changes will be manageable by the bank, she added.

As per the RBI’s draft guidelines, issued on 3 May, banks have to set aside a provision of 5% of the loan amount for infra projects at the construction phase. At present, lenders are required to have a provision of 0.4% on project loans that are not overdue or stressed.

The draft rules classify the projects as per their phase.  The regulator has classified three stages of the project – design, construction and operational phase. Banks financing such projects must ensure that financial closure has been achieved and DCCO [date of commencement of commercial operation] is clearly spelt out and documented prior to disbursement of funds.

For projects reaching the 'operational phase', the provisions can be reduced to 2.5% of the funded outstanding and then further down to 1% if certain conditions are met.

The bank has already provided its feedback to the RBI on the project finance guidelines, Manimekhalai said.