RBI Finalizes Project Finance Norms, Lowers Provisioning Requirements for Banks

The Reserve Bank of India (RBI) has officially released the final guidelines on project finance norms, significantly easing the provisioning requirements for banks. These revised norms will come into effect from October 1, 2025, and are expected to bring much-needed clarity and consistency across all regulated financial entities.

What Are the New Project Finance Provisioning Norms?

Under the new rules, banks will be required to maintain general provisions ranging from 0.40% to 1.25% depending on the phase and type of project. These provisions are applicable to funded outstanding amounts and will be calculated on a portfolio basis.

Here’s how the provisioning will apply:

These revised rates are much lower than the draft guidelines, which had earlier suggested provisioning as high as 5% during the construction phase. The final norms have significantly reduced the compliance burden on banks, which was a major concern during the initial consultation.

Effective Date and Regulatory Context

The RBI clarified that although the original implementation date was expected to be before March 31, 2026, the norms will now be enforced from October 1, 2025. This comes after RBI Governor Sanjay Malhotra had earlier announced a one-year deferment in February.

The central bank also emphasized that this new regime has been harmonized across all regulated entities, ensuring uniformity in how banks deal with project finance exposures, especially when dealing with stressed assets.

Why This Matters

Project finance plays a vital role in infrastructure development and economic growth. By setting clear and moderate provisioning requirements, the RBI aims to encourage more structured and disciplined financing in sectors like real estate, housing, and infrastructure without overburdening the banking system.

The final norms offer much-needed relief to banks that were previously concerned about high capital lock-in under the draft proposal. It strikes a balance between prudent risk management and credit flow to long-gestation infrastructure projects.

Key Highlights

• RBI’s final project finance norms will be effective from October 1, 2025.

• Provisioning during the construction phase ranges from 1% to 1.25%.

• Operational phase provisioning is reduced to as low as 0.40%.

• New norms are significantly lower than the earlier draft proposal.

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