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Key Points

The RBI’s relaxed project financing norms will barely dent bank and NBFC profitability, per a Motilal Oswal report. Key relief comes from slashing construction-phase provisioning to 1% versus the earlier 5% draft proposal. Lenders can likely pass additional costs to borrowers, especially amid falling interest rates. The finalized rules strike a balance between risk management and sustaining project lending momentum.

Key Points: RBI Eases Project Finance Norms With Minimal Bank NBFC Impact

  • RBI cuts project loan provisioning to 1% vs 5% draft proposal
  • New norms effective Oct 1, easing capital burden
  • Banks may pass incremental costs to borrowers
  • Final rules balance risk and lending flow
2 min read

RBIs project financing norms will have negligible impact on banks, NBFCs: Report

RBI’s revised project financing rules ease provisioning to 1%, sparing banks and NBFCs from major profit hits, says Motilal Oswal report.

"We believe the impact of the revised norms on bank/NBFC profitability will be negligible – Motilal Oswal Report"

New Delhi, June 21

The relaxation in project financing norms by the Reserve Bank of India (RBI) to banks and NBFCs will have a negligible impact on the profitability on their profitability and balance sheet, according to a report by Motilal Oswal.

"We believe the impact of the revised norms on bank/NBFC profitability will be negligible, as the existing book remains unaffected," the report added.

However, the report added, "For new project loans, any incremental provisioning cost is likely to be passed on to borrowers, especially in a declining rate environment, through yield adjustments."

The report added that RBI's final project finance guidelines are a positive for banks and NBFCs, especially when compared to the stricter 2024 draft.

The apex bank 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.

The most notable relief came from the significantly eased provisioning requirements, which were cut to just 1 per cent during construction compared to 5 per cent proposed earlier and as low as 0.4 per cent post Date of Commencement of Commercial Operations (DCCO).

These new guidelines will come into effect from October 1 current year.

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.

As per to new rules, the RBI introduced a principle-based regime for stress resolution in project finance exposures, applicable across all regulated entities (REs), ensuring a harmonised approach.

The report stated that the easing norms reduce capital drag while still maintaining prudence.

"Overall, the final norms strike a balanced approach, enabling continued flow of project finance with minimal impact on the profitability or balance sheet strength of lenders," the report further added.

- ANI

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Reader Comments

R
Rajesh K.
Good move by RBI! Our infrastructure projects need financing without excessive burden on banks. The 1% provisioning during construction phase is reasonable. Hope this boosts infra development 🇮🇳
P
Priya M.
While the relaxation is welcome, I worry if banks might become too lenient in project assessments. RBI should ensure strict monitoring so we don't end up with NPAs later. Prevention is better than cure!
A
Amit S.
Finally some pragmatism from RBI! The draft norms would have killed infrastructure financing. This balanced approach will help complete projects faster and create jobs. Kudos to listening to stakeholders 🙌
S
Sunita R.
As someone working in banking sector, I can say these norms are much needed. Project financing was becoming too risky with earlier proposals. This will help maintain credit flow to important sectors.
V
Vikram J.
Interesting how RBI changed stance after feedback. Shows our regulators are responsive. But will borrowers really benefit or will banks just pass on costs? Need to watch implementation closely.
N
Neha T.
This is good for economy overall. Easier project financing means more roads, power plants, and factories getting built. Hope state governments also simplify their approval processes now!

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