RBI Issues New Project Finance Norms for Banks and NBFCs

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. 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.

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