Project finance, inherently complex and characterized by extended gestation periods, necessitates a robust and harmonized regulatory framework. In this context, the Reserve Bank of India (RBI) has undertaken a comprehensive review of the existing prudential norms governing projects under implementation. The outcome of this review is the issuance of the Reserve Bank of India (Project Finance) Directions, 2025, which introduces a unified and strengthened regulatory structure applicable across all regulated entities (REs).
These Directions specifically address revisions related to the Date of Commencement of Commercial Operations (DCCO) and outline key regulatory expectations and provisions as follows:
Key Highlights of the Revised Directions:
- Principle-Based Stress Resolution Framework: Introduction of a principle-based regime for the resolution of stress in project finance exposures, harmonized across all regulated entities.
- DCCO Rationalisation: Revised norms permit DCCO extensions up to a maximum of:
- Three years for infrastructure projects, and
- Two years for non-infrastructure projects.
These extensions are allowed at the discretion of REs based on their commercial assessments, within the prescribed limits.
- Standard Asset Provisioning Norms for Under-Construction Projects:
- A uniform provisioning requirement of 1% has been prescribed for standard assets under construction.
- In cases of DCCO deferment, the provisioning requirement will escalate incrementally each quarter.
- For under-construction commercial real estate (CRE) exposures, the provisioning requirement will be slightly higher at 1.25%.
- Grandfathering of Existing Projects: Projects that have already achieved financial closure prior to the effective date will continue to be governed by the extant provisioning norms to ensure smooth implementation.
- Provisioning Norms During Operational Phase:
- CRE Projects: 1%
- CRE – Residential Housing (CRE-RH): 0.75%
- Other Operational Projects: 0.40%
A Pivotal Policy Shift in Project Finance Regulation
One of the most significant changes under the revised norms is the substantial reduction in provisioning requirements for under-construction infrastructure projects. While the RBI’s draft proposal issued in May 2024 had suggested a provisioning level of 5%, following extensive feedback and representation from lending institutions, the final norms have fixed this requirement at 1%. This revision is expected to alleviate the capital burden on lenders and foster a more conducive environment for project financing.
For operational projects, the provisioning requirement of 0.4% remains unchanged—lower than the 1% to 2.5% range proposed earlier. The updated guidelines also stipulate that loans for under-construction commercial real estate projects attract a higher provisioning of 1.25%.
In addition, for large-scale projects where the aggregate exposure of all lenders exceeds ₹1,500 crore, the revised norms mandate a minimum exposure of ₹150 crore or 5% of total exposure (whichever is higher) per participating lender.
Conclusion
The RBI (Project Finance) Directions, 2025, effective from October 1, 2025, mark a significant evolution in the regulatory framework governing project finance. By reducing capital strain on banks and non-banking financial companies (NBFCs), the revised norms aim to facilitate efficient financing of infrastructure and industrial ventures while ensuring prudent risk oversight. The harmonised and principle-based approach enhances clarity and consistency across financial institutions, encouraging renewed momentum in India’s project finance ecosystem. The broadly positive market response reflects the importance of regulatory predictability and the potential for infrastructure-led economic growth under the revised framework.
