RBI Eases Norms For Project Finance Loans

The Reserve Bank of India on Thursday eased guidelines for project finance loans extended by banks and non-bank lenders. The new norms, which come into effect from October 1, 2025, require that under construction projects carry a 1% standard asset provisioning, compared with the 5% requirement proposed in the draft norms released in May 2024.

According to the final norms, the standard asset provisions shall rise for each quarter of deferment of the date of commencement of commercial operations. The requirements for under construction CRE exposures will be, however, slightly higher at 1.25%.

For accounts which have availed DCCO deferment and are classified as ‘standard', lenders shall maintain additional specific provisions of 0.375% for infrastructure project loans and 0.5625% for non-infrastructure project loans, RBI said.

RBI has allowed rationalisation of permissible DCCO extensions with an overall ceiling of three and two years for infrastructure and non-infrastructure sectors, respectively.

Lenders have flexibility on deciding the DCCO extensions, within the above-mentioned time limits, depending on commercial assessment of projects.

In cases where a resolution plan needs to be implemented for a project, RBI has allowed for a principle-based regime to decide on the path ahead. The draft was more prescriptive in its approach.

In case of upgradation of project loans, the draft norms recommended a minimum 360-day period where the project must show satisfactory performance before it is upgraded from non-performing asset to standard.

The final norms state that lenders can upgrade a loan only after the project has achieved satisfactory performance. Similarly, in case of a project loan classified as NPA, lenders can upgrade the account after successful implementation of a resolution plan. However, there should no further requests for a DCCO deferment, after the plan is implemented.

The draft norms released last year had led to considerable opposition from lenders, who saw the provisioning requirement as too onerous.

The draft norms had recommended a 5% standard asset provision for under construction projects which would be achieved in a staggered manner over time. Once a project reached the operational phase, the provisioning would be brought down to 2.5%, according to the draft norms.

Under the new norms, during the operational phase, RBI has allowed lenders to hold 1% standard asset provisioning for commercial real estate loans, 0.75% for housing related real estate loans and 0.4% for all other project loans.

"Final guidelines on project finance come as a relief to the lenders, as for operational projects the extant requirement continues at 0.4%, which is lower than 1%/2.5% indicated in the earlier draft. For under construction project finance provisions are kept at 1% vis-a-vis 5% suggested in the draft. This is however higher than 0.4% applicable at present for banks. 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," said A M Karthik, Senior Vice President & Co-Group Head, Financial Sector Ratings, ICRA Ltd.