Asset provisioning requirements will be reduced at the time of operational phase.
| Photo Credit: DANISH SIDDIQUI
The Reserve Bank (RBI) on Thursday issued RBI (Project Finance) Directions 2025 asking Regulated Entities (REs) to maintain general provision of 1.25% for under construction Commercial Real Estate (CRE) loans and 1% for infrastructure projects under construction.
However, asset provisioning requirements will be reduced at the time of operational phase.
This rate is far lower than the of provision of 5% proposed in the draft for under construction projects, 2.5% in the operational stage and 1% at cash generation stage to cover the loan.
The directions have been issued to institutionalise a framework for the REs for financing project loans, while addressing the underlying risks.
The directions entail adoption of a principle-based regime for resolution of stress in project finance exposures, harmonised across REs and rationalisation of permissible ‘date of commencement of commercial operations’ (DCCO) extensions with an overall ceiling of three and two years for infrastructure and non-infrastructure sectors, respectively.
The directions provide flexibility to REs in extending the DCCO within the above ceilings, based on their commercial assessments.
The standard asset provisioning requirement has been rationalised to 1% for projects under construction, which will gradually increase for each quarter of DCCO deferment.
“The requirements for under construction CRE exposures will be however, slightly higher at 1.25%,” according to the notification.
“Under construction projects where financial closure has already been achieved shall continue to be guided by the extant provisioning norms to facilitate a seamless implementation,” the notification mentions.
During operational phase, the standard asset provisioning requirement will stand reduced to 1% for CRE, 0.75% for CRE-RH [Residential Housing] and 0.40% for other project exposures, respectively.
The directions will come into force with effect from October 1.
The RBI had issued 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.
As part of the stakeholder consultation exercise, inputs / feedback were received from around 70 entities including banks, NBFCs, industry associations, academicians, law firms, individuals and the Central Government, the RBI said.
The inputs/ feedback received had been examined and suitably incorporated while formalising the final Directions, it added.
Published – June 19, 2025 07:34 pm IST
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