PFC, REC shares rally up to 6% on RBI relief for project financiers

Shares of India's project financiers rallied on Friday after the Reserve Bank of India (RBI) lowered provisioning to 1 per cent during construction and exempted existing projects from higher requirements.
Shares of Power Finance Corp rose as much as 5.66 per cent at ₹412.4, the steepest gains since April 15 this year. It pared gains to trade 5.4 per cent higher at ₹411, compared to a 0.9 per cent rise in the benchmark Nifty50, as of 10:37 AM.
During the session, the counters of REC and Indian Railway Finance Corp surged as much as 6 per cent and 2.3 per cent, respectively. It later trimmed gains to trade 4 per cent and 2 per cent higher. The Bank Nifty also traded higher, gaining as much as 0.69 per cent during the day. Track LIVE Stock Market Updates Here
RBI relief for project finance
The RBI mandated a general provision of only 1 per cent of funded outstanding during the construction phase for all projects except for commercial real estate (CRE), as compared to 5 per cent proposed in the draft norms released in May last year. This provisioning would come into effect from October 1, 2025, the RBI said on Thursday.
For CRE, the general provision requirement would be 1.25 per cent in the construction phase, while it would be 1 per cent for CRE-Residential Housing (RH). During the operational phase, the standard asset provisioning requirement will reduce to 1 per cent for CRE, 0.75 per cent for CRE-RH, and 0.4 per cent for other project exposures.
At present, standard asset provisioning for all projects except CRE is 0.4 per cent. For CRE, it is 1 per cent. Further, the RBI also clarified that the increased provisioning requirement was not applicable for existing projects. The draft norms proposed higher provisions for existing projects, too.
Motilal Oswal on RBI's project financing norms
The new guidelines simplify and standardise the treatment of project loans across sectors, the brokerage said in a note. While the 2024 draft norms had proposed stringent provisioning and upgrade rules, the final guidelines "significantly" relax these provisions, resulting in minimal impact on banks' profitability and balance sheets.
The brokerage believes that revised norms will have a negligible impact on bank and NBFC profitability. For new project loans, any additional provisioning costs are likely to be passed on to borrowers through yield adjustments. Top picks for the brokerage include: ICICI Bank, HDFC Bank, State Bank of India, AU Small Finance Bank, and Federal Bank.
Emkay on project financing norms
The RBI's latest financing norms represent a major shift from the stringent draft, and offer a lower, risk-based provisioning, harmonised rules, and greater flexibility for lenders, the brokerage said. The sharper reduction in standard asset provisioning during the construction phase is a huge respite for project financiers, it said.
The impact of these guidelines will be visible only from FY27, it said, adding that there will likely be no impact on profit or networth, though the regulatory capital (Tier I) will be reduced by this minor impairment reserve.
REC and PFC shares have materially underperformed since the second half of the financial year 2024-25 (FY25), largely due to a de-rating driven by moderation in assets under management (AUM) growth, the brokerage said. "While near-term growth concerns persist, the medium- to long-term outlook for the power sector, both conventional and renewable, remains strong."

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