The comprehensive framework, aimed at streamlining and standardizing project loan regulations across banks, NBFCs, and cooperative lenders, comes into effect from 1 October 2025.

The market responded swiftly to the announcement, with shares of key project financiers surging in morning trade. PFC jumped 5.37%, while REC climbed 3.33%, as investors welcomed the regulatory clarity and operational flexibility promised by the new guidelines.

Compared to the RBI's draft proposal from May 2024, which had outlined a steeper 5% standard asset provisioning for under-construction projects, the final guidelines dial things down substantially. Now, lenders will need to set aside just 1% for infrastructure projects and 1.25% for commercial real estate (CRE). That's a major breather for dedicated project financiers like REC and PFC, who had been staring at potentially higher capital requirements under the earlier draft.

The RBI has rationalized the norms around the extension of the 'Date of Commencement of Commercial Operations' (DCCO), allowing extensions of up to three years for infrastructure projects and two years for non-infrastructure ones. Lenders will also have greater flexibility to assess and decide on DCCO extensions within these ceilings based on commercial viability.

The provisioning requirements for under-construction projects have been streamlined as well. Lenders will now set aside a standard 1% for such exposures, with a gradual increase depending on the length of DCCO deferment. In the case of under-construction commercial real estate, the initial provisioning will be slightly higher at 1.25%. For projects that have already achieved financial closure, existing provisioning rules will continue to apply, ensuring a smooth transition to the new regime.

Once projects become operational, the provisioning rates are clearly defined: 1% for commercial real estate, 0.75% for CRE-residential housing, and 0.40% for other project loans. This structured approach is expected to bring predictability to provisioning and risk management practices.

The market view is clear: the final norms are far more balanced and pragmatic. They reduce capital drag without compromising prudential standards. The relaxed provisioning norms, coupled with the exclusion of existing loan books from the new rules, would have negligible impact on NBFC and bank profitability.

For power sector financiers like PFC and REC, the relief is doubly reassuring. Even the marginal provisioning required under the new norms will be comfortably absorbed through existing impairment reserves. Importantly, the directions only apply to loans achieving financial closure on or after 1 October 2025, meaning current portfolios are unaffected.

While the earlier draft had also proposed a stringent 360-day performance requirement for loan upgrades -- another red flag for lenders, this too has been relaxed in the final version. The overall tone of the guidelines has shifted from caution-heavy to growth-accommodating, signalling the RBI's intent to support long-term infrastructure finance without straining lender balance sheets.

Powered by Capital Market - Live News