More Stories

Informist, Thursday, Jun. 19, 2025

 

--RBI issues project finance directions 

--RBI: Project finance directions to come into force from Oct 1 

--RBI: Need 1% standard asset provisioning for projects under construction 

--RBI: Standard asset provision of 1.25% for commercial real estate projects 

 

NEW DELHI – The Reserve Bank of India has eased the provisioning requirements for lenders in the final project finance directions released Thursday. According to the final directions, which will come into effect from Oct. 1, the standard asset provisioning requirement has been lowered to 1% during the construction phase of projects compared with the 5% requirement suggested in the draft norms.

 

As per the directions, a lender will have to maintain a general provision of 1.25% during the construction phase of commercial real estate projects. Lenders will have to keep a 1.00% provision during the construction phase of residential housing projects and all other projects, the RBI said.

 

The draft norms, released in May 2024, had seen pushback from banks, non-banking financial companies and even the finance ministry. Informist had reported in October that the finance ministry had written to the RBI suggesting a complete rethink on the draft norms, which threatened to tighten funding for infrastructure projects.

 

Currently, banks keep a provision of 0.4% on the outstanding exposures during construction. For projects which are currently operational, the standard provisioning requirement will remain 0.4%.

 

Once a project reaches an operational phase, and the interest and principal repayment begins, lenders can reduce the provisions to 1.00% for commercial real estate projects. For residential housing projects, the provisioning requirement during the operational phase has been reduced to 0.75%, and for all other projects to 0.40%. The draft norms had suggested the provisioning requirement during the operational phase at 2.5% of the funded outstanding, which could then be reduced to 1%. 

 

The RBI has mandated that no individual lender shall have an exposure of less than 10% of the total exposure in under-construction projects where the aggregate exposure of all lenders is up to INR 15 billion. For projects where aggregate exposure of all lenders is more than INR 15 billion, the exposure floor for an individual lender should be 5% or INR 1.5 billion, whichever is higher, the RBI said. 

 

A lender will have to ensure the availability of sufficient land or right of way for all projects before disbursement of funds, the RBI said. For infrastructure projects under the public-private partnership model, a lender will have to ensure the availability of 50% of the land before disbursing funds. For all other projects, 75% of the land must be available before a lender disburses funds, the RBI said.

"Final guidelines on project finance come as a relief to the lenders," said A.M. Karthik, senior vice president and co-group head, financial sector ratings at ICRA. "Limited impact expected on NBFCs as sufficient provisions are provided as per the expected credit loss assessment and provisioning at present is closer to the requirement as per the guidelines," Karthik said in a note. "Also, the provisions are applicable prospectively, from Oct 2025, and, thus overall impact for lenders shall be limited."

 

The RBI said that a project will continue to be classified as 'standard' up to three years after the deferment of the date of commencement of commercial operations from the original date for infrastructure projects. For non-infrastructure projects, the permitted deferment period from the original date of commencement is two years. 

 

For accounts which defer the start of commercial operations and are classified as 'standard', lenders will have to maintain additional specific provisions of 0.375% for infrastructure project loans and 0.5625% for non-infrastructure project loans for each quarter of deferment, the RBI said. "These additional specific provisions shall be reversed upon commencement of commercial operation."

 

The RBI has allowed a cost overrun up to a maximum of 10% of the original project cost, in addition to the interest accrued on debt provided by a lender and capitalised during the construction phase of the project. A project finance account where the extension date of commencement of commercial operations is necessitated by an increase in scope and size will be classified as 'standard' if the rise in project cost, excluding any cost overrun in respect of the original project, is 25% or more of the original outlay, the RBI said.

 

The standard asset classification benefit on account of ‘change in scope' shall be allowed only once during the lifetime of the project. Non-compliance with any of the provisions contained in the new project finance directions will attract supervisory and enforcement action as applicable, the central bank said.  End

 

Reported by Shubham Rana

Edited by Saji George Titus

 

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.