RBI issues final guidelines on project finance; new norms effective from October 1

NEW DELHI: The Reserve Bank of India (RBI) on Wednesday issued the final Reserve Bank of India (Project Finance) Directions, 2025 which lays down the comprehensive framework for income recognition, asset classification, and provisioning norms for project loans under implementation.

As per the Central Bank, these new guidelines will come into effect from October 1 current year. The directions follow the RBI draft guidelines on ‘Prudential Framework for Income Recognition, Asset Classification and Provisioning pertaining to Advances – Projects Under Implementation’ on May 03, 2024, for stakeholder comments.

The draft guidelines proposed an enabling framework for the regulated entities (REs) for financing project loans, while addressing the underlying risks. RBI said that it received feedback from nearly 70 entities, including banks, NBFCs, industry bodies, academicians, law firms, individuals, and the Central Government.

According to new rules, the apex bank has introduced a principle-based regime for stress resolution in project finance exposures, applicable across all regulated entities (REs), ensuring a harmonised approach.

The framework also rationalises the extension limits for the Date of Commencement of Commercial Operations (DCCO) to three years for infrastructure and two years for non-infrastructure projects, allowing REs commercial flexibility within these ceilings.

On the provisioning front, standard asset provisioning for projects under construction has been fixed at 1%, increasing gradually with each quarter of DCCO deferment.

“Rationalisation of standard asset provisioning requirement to 1 per cent for projects under construction, which shall gradually increase for each quarter of DCCO deferment. The requirements for under-construction CRE exposures will be however, slightly higher at 1.25 per cent,” the RBI said in a notification.

“During the operational phase, the standard asset provisioning requirement shall stand reduced to 1 per cent for CRE, 0.75 per cent for CRE-RH and 0.40 per cent for other project exposures, respectively,” the RBI added.

The new directions are aimed at balancing flexibility in project lending with adequate safeguards to manage risk, a long-standing demand from lenders and developers alike. (ANI)