Key Highlights
- New RBI roadmap for project finance goes live on 1 October 2025.
- Provisioning norms are lowered—1% for ongoing projects and 0.4% for completed ones.
- Guidelines are not applied retroactively, protecting existing funded deals.
- Infrastructure projects can be delayed up to three years under the new regime.
- Major infrastructure‑financing NBFCs PFC and REC are expected to experience minimal balance‑sheet strain.
Detailed Insights
The Reserve Bank of India’s final directives aim to harmonise the standards across banks and non‑banking financial institutions, making it easier for lenders to fund large‑scale infrastructure. For projects still under construction, the central bank has capped provisioning at 1% of the sanctioned amount, rising to 1.25% for commercial real‑estate developments. Once a project is operational, the required provisioning drops to 0.4% for general infrastructure, 0.75% for CRE‑residential housing and 1% for commercial‑real‑estate projects.
Importantly, the rules are prospective only. Loans that have already crossed the financial‑closure threshold will not be subject to the new rates, thereby avoiding any retroactive burden on current portfolios.
To accommodate the time‑consuming nature of large infrastructure ventures, RBI permits up to three years of delay for infrastructure projects and two years for non‑infrastructure ones, with supplementary provisioning during the deferment period that is reversed once work commences.
The revamped framework not only standardises lending limits but also aims to stifle disruption in ongoing financing streams and reinforce the overall stability of the financial sector.
For two of India’s biggest megaproject financiers—Power Finance Corporation (PFC) and Rural Electrification Corporation (REC)—the impact on their balance sheets will be limited, thanks to existing provisioning buffers (0.95% for REC, 1.13% for PFC). The banks may, however, shift the cost to borrowers through adjusted rates.
Key Concepts
- Project Finance Lending: A long‑term financing model where a debt is repaid from the cash flow generated by the project rather than the borrower's general assets.
- Provisioning Norms: Regulatory thresholds that dictate the amount of reserves banks must hold against potential loan losses.
- Non‑Banking Financial Company (NBFC): A financial entity that offers credit facilities but does not hold a banking licence.
- Maharatna Status: A designation given to large public sector enterprises that grants them greater autonomy and preferential credit facilities.
- Retrospective Application: The practice of applying new regulations to existing contracts or loans.