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Key Points

The RBI has finalized its project finance guidelines, effective October 1, introducing a 1% provisioning requirement for under-construction projects. Infrastructure projects now get a 3-year DCCO extension window while non-infra projects get 2 years. The rules aim to balance lender flexibility with risk management, incorporating feedback from 70 stakeholders. These changes address long-standing industry demands for clearer project financing frameworks.

Key Points: RBI Finalizes Project Finance Rules Effective October 1

  • New norms standardize stress resolution for project loans
  • DCCO extension capped at 3 years for infra projects
  • Staggered provisioning increases with project delays
  • Aligns risk management for banks and NBFCs
2 min read

RBI issues final guidelines on project finance; new norms effective from October 1

RBI introduces new project finance norms with 1% provisioning for under-construction projects, harmonizing risk management across banks and NBFCs.

"Rationalisation of standard asset provisioning requirement to 1 per cent for projects under construction – RBI"

New Delhi, June 19

The Reserve Bank of India (RBI) on Wednesday issued the final Reserve Bank of India (Project Finance) Directions, 2025 which lays down the comprehensive framework for income recognition, asset classification, and provisioning norms for project loans under implementation.

As per the Central Bank, these new guidelines will come into effect from October 1 current year.

The directions follow the RBI draft guidelines on 'Prudential Framework for Income Recognition, Asset Classification and Provisioning pertaining to Advances - Projects Under Implementation' on May 03, 2024, for stakeholder comments.

The draft guidelines proposed an enabling framework for the regulated entities (REs) for financing project loans, while addressing the underlying risks.

RBI said that it received feedback from nearly 70 entities, including banks, NBFCs, industry bodies, academicians, law firms, individuals, and the Central Government. According to new rules, the apex bank has introduced a principle-based regime for stress resolution in project finance exposures, applicable across all regulated entities (REs), ensuring a harmonised approach.

The framework also rationalises the extension limits for the Date of Commencement of Commercial Operations (DCCO) to three years for infrastructure and two years for non-infrastructure projects, allowing REs commercial flexibility within these ceilings.

On the provisioning front, standard asset provisioning for projects under construction has been fixed at 1%, increasing gradually with each quarter of DCCO deferment.

"Rationalisation of standard asset provisioning requirement to 1 per cent for projects under construction, which shall gradually increase for each quarter of DCCO deferment. The requirements for under-construction CRE exposures will be however, slightly higher at 1.25 per cent," the RBI said in a notification.

"During the operational phase, the standard asset provisioning requirement shall stand reduced to 1 per cent for CRE, 0.75 per cent for CRE-RH and 0.40 per cent for other project exposures, respectively," the RBI added.

The new directions are aimed at balancing flexibility in project lending with adequate safeguards to manage risk, a long-standing demand from lenders and developers alike.

- ANI

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Reader Comments

R
Rajesh K.
Finally some clarity on project financing! The gradual provisioning increase makes sense - it will prevent sudden shocks to developers when projects get delayed. Hope this boosts infrastructure growth 🇮🇳
P
Priya M.
As someone working in banking, I welcome these guidelines. The 1% standard provisioning is reasonable, though NBFCs might feel the pinch initially. Good to see RBI considering stakeholder feedback before finalizing.
A
Amit S.
The 3-year limit for infra projects is practical. Many road projects get delayed due to land acquisition issues. But RBI should monitor if banks misuse this flexibility. Accountability is key!
S
Sunita R.
While the guidelines are progressive, I'm concerned about the higher provisioning for CRE (1.25%). This might make banks hesitant to finance commercial real estate projects, which are already struggling post-pandemic 😕
V
Vikram J.
Good move by RBI! The principle-based stress resolution will help avoid unnecessary litigation. But implementation will be crucial - hope banks don't become too risk-averse now. Need to balance caution with growth.
N
Neha P.
The reduced provisioning during operational phase (0.4%) is a smart incentive. Will encourage timely project completion. Overall, these guidelines seem well-thought after considering 70+ stakeholder inputs. Thumbs up! 👍

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