RBI Issues New Project Finance Norms for Banks and NBFCs

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  • Last Updated on 21 June, 2025

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RBI Project Finance Directions

PR No. 2025-2026/563; Dated: 19.06.2025

The Reserve Bank of India (RBI) has introduced comprehensive Project Finance Directions, 2025, applicable to all banks, Non-Banking Financial Companies (NBFCs), and All India Financial Institutions (AIFIs)—collectively referred to as Regulated Entities (REs). These directions aim to streamline and strengthen the regulatory framework for project-based lending.

1. Definition of Project Finance

Under the new framework, project finance is defined as lending where:

  • Project revenues are the primary source of repayment.
  • The loan is secured primarily by the project’s assets and cash flows, not the borrower’s general creditworthiness.

2. Key Provisions of the 2025 Directions

2.1 Principle-Based Stress Resolution Framework

  • RBI has mandated the adoption of a principle-based approach for resolving stress in project finance exposures.
  • This replaces prescriptive norms with broad guidelines, allowing greater flexibility and judgment to REs in managing stressed accounts.
  • REs are expected to develop internal policies based on these principles for timely detection, reporting, and resolution.

2.2 Flexibility in Extension of DCCO

  • The directions allow greater flexibility in extending the Date of Commencement of Commercial Operations (DCCO) for project loans.
  • Extensions will not automatically trigger asset classification downgrade if they meet prescribed conditions, such as:
    1. Legitimate project delays beyond the control of the borrower
    2. Continued viability of the project
    3. Regular servicing of interest during the extended period

2.3 Rationalisation of Standard Asset Provisioning

  • RBI has rationalised the standard asset provisioning requirement for under-construction projects.
  • The provisioning norm is now set at 1%, replacing earlier higher thresholds.
  • This aims to align regulatory capital requirements with actual credit risk while promoting infrastructure development and long-gestation projects.

3. Objectives and Implications

These directions are expected to:

  • Improve credit discipline and promote timely stress resolution.
  • Provide regulatory clarity for long-term project financing.
  • Encourage greater participation from REs in infrastructure and development financing.
  • Ensure balance between financial prudence and operational flexibility in project lending.

REs are advised to implement these directions in letter and spirit and formulate suitable internal frameworks to align with the RBI’s updated norms.

Click Here To Read The Full Press Release

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied