IREDA, PFC, REC, HUDCO, IRFC Shares Rise As RBI Softens Project Finance Norms

Shares of state-owned infrastructure financiers such as Indian Renewable Energy Development Agency Ltd., Power Finance Corp., REC Ltd., HUDCO and Indian Railway Finance Corp. rose on Friday, after the Reserve Bank of India finalised its project finance guidelines.

The new rules, which ease provisioning requirements for under-construction loans, are being viewed as a favourable move for lenders heavily exposed to the infrastructure and real estate sectors.

The RBI has lowered the standard asset provisioning requirement for under-construction infrastructure projects from 5% to 1%, while commercial real estate projects will require a 1.25% provision. These norms will come into effect from Oct. 1, 2025. The relaxation aims to reduce the capital burden on lenders and encourage more long-term financing for infrastructure and real estate developments.

The lower provisioning norms mean that lenders — especially banks and project-focused NBFCs — need to set aside less capital for potential future losses on under-construction loans. This frees up more funds for lending, potentially increasing disbursements to key sectors such as energy, housing, transportation, and urban infrastructure.

Key positives include:

• Improved profitability: With lower capital buffers required, lenders may report better earnings from project finance portfolios.

• Greater flexibility: Lenders now have more leeway in extending project timelines and upgrading loans based on project performance rather than rigid time-bound criteria.

• Revival of infra lending: Easing norms are expected to support continued interest in funding long-gestation infrastructure projects.

The RBI’s announcement has triggered renewed investor interest in public sector project financiers, especially those with strong exposure to infrastructure.

Brokerages have responded positively to the announcement. Jefferies, Emkay, CLSA, Citi, and Bernstein all see the changes as a tailwind for infrastructure lending. They expect a boost in disbursements and improved return metrics for lenders such as REC and PFC, alongside large public sector banks.

IREDA and PFC, which are key lenders to the renewable and power sectors, stand to benefit from improved capital efficiency. The shares of IREDA and PFC were up 2.44% and 4.36%, respectively.

REC, already provisioning close to the revised norms, could see minimal financial disruption but improved sentiment. The share of the company was up 3.48%.

HUDCO, focused on housing and urban development, may gain from renewed thrust in infrastructure lending. The shares were up 2.35% on Friday.

The shares of IRFC, the financial arm of Indian Railways were up 1.92% on Friday.

Additionally, most PSU Banks in the Nifty PSU Bank index which was up 1.25% on Friday were trading in the green. The gains were led by Union Bank, Indian Overseas Bank and Canara Bank.

On the other hand, Bank of India, Punjab National Bank and Punjab Sind Bank fell on Friday.