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Informist, Thursday, Jun. 26, 2025

 

NEW DELHI – The Reserve Bank of India's final project finance directions, released last week, will strengthen risk safeguards for lenders, Crisil Ratings Thursday said. The final norms include lower provisioning requirements compared with the draft proposals and will apply prospectively, which should help ease concerns about credit costs and support growth, the rating agency said.

 

The central bank has eased the provisioning requirements for lenders in the final project finance directions released on Jun. 19, compared with what was proposed in the draft norms last year. In the final directions, which will come into effect on Oct. 1, the RBI has lowered the standard asset provisioning requirement to 1% during the construction phase of projects compared with the 5% requirement suggested in the draft norms. Currently, banks keep a provision of 0.4% on the outstanding exposures during construction.

 

"Compared with the draft of May 2024, the final directions improve the ease in doing business for lenders," Subha Sri Narayanan, director, Crisil Ratings, said in the report. "...the impact on credit costs would be well below what was envisaged earlier."

 

Historically, project financing has faced substantial stress due to challenges in project execution, such as delays, cost overruns, and regulatory hurdles. With provisioning levels rising moderately for under-construction projects, lenders will be better equipped to absorb potential losses, Crisil said. The increased provisioning requirements for project finance will also enhance the resilience of India's financial sector.

 

Earlier on Thursday, CareEdge Ratings said credit cost of public sector banks may rise by 7-10 basis points due to implementation of the new project finance norms. For private sector banks, the impact of incremental provisioning would be up to 3-5 bps, CareEdge said.  End

 

Reported by Shubham Rana

Edited by Subhojit Sarkar

 

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