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Business Standard
11 hours ago
- Business
- Business Standard
PFC, REC gain as RBI unveils final project finance norms
Shares of Power Finance Corporation (PFC) and REC rose by 3.33% to 5.37% after the Reserve Bank of India (RBI) issued its final Project Finance Directions, 2025. 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 RBIs 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). Thats 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.
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Business Standard
12 hours ago
- Business
- Business Standard
PSU Bank index jumps 2% as RBI eases norms for new project finance loans
PSU Bank stocks: The public sector bank stocks were rallying on Friday after the Reserve Bank of India (RBI) issued its final guidelines on project finance loans. Snapping a three-day losing streak, the Nifty PSU Bank index surged over 2 per cent to hit an intraday high of 6,899.5 level, compared to the previous day's close of 6,734.3. The index was the lead gainer among the Nifty sectoral indices and outperformed the benchmark Nifty50 index which was slightly up over 1 per cent at day's high. Last checked, the Nifty PSU Bank index was trading at 6,832.75 levels, up 1.46 per cent. Among the index constituents, Punjab National Bank was the top gainer, up by over 3 per cent, followed by Union Bank of India, Canara Bank, Indian Overseas Bank, Bank of India, Central Bank of India and State Bank of India rising in the range of 1 to 3 per cent. RBI guidelines for project finance loans: The new rules, which will come into effect from October 1, 2025, require a general provision of 1.25 per cent on Commercial Real Estate (CRE), and 1 per cent each on Commercial Real Estate-Residential Housing (CRE-RH) and another portfolio during the construction phase. After commencement of repayment of interest and principal, banks have to maintain 1 per cent general provisions on commercial real estate projects during the operational phase, and 0.75 per cent on residential housing (CRE-RH), while 0.40 per cent on all other projects, the central bank said. The final directions are softer than those in the draft norms released in May 2025. The draft proposal suggested 5 per cent standard assets provisioning for under-construction projects. The final regulations give lenders significant relief. According to new norms, under-construction projects carry a 1 per cent standard asset provisioning, compared with the 5 per cent requirement proposed in the draft norms. The standard provisions shall increase for each quarter of deferment of the date of commencement of commercial operations. The requirements for under-construction CRE exposures will be marginally higher at 1.25 per cent. In addition, the requirement of specific provisions on DCCO (Date of Commencement of Commercial Operations) deferred standard assets is cut to a time-based rate of 0.4-0.6 per cent per quarter from a flat rate of 2.5 per cent. According to RBI guidelines, for accounts which have availed DCCO deferment and are classified as 'standard', lenders shall maintain additional specific provisions of 0.375 per cent for infrastructure project loans and 0.5625 per cent for non-infrastructure project loans. Brokerage views According to analysts at Motilal Oswal, the RBI's final project finance norms come as part of the broader wave of supportive regulatory measures aimed at sustaining momentum in the banking sector. "We believe the impact of the revised norms on bank/NBFC profitability will be negligible, as the existing book remains unaffected. For new project loans, any incremental provisioning cost is likely to be passed on to borrowers, especially in a declining rate environment, through yield adjustments," the brokerage said. The brokerage added that the key positive in the final norms is that they apply only to new and upcoming project loans. Existing exposures will continue to follow the current prudential provisioning framework, ensuring there is no disruption to the back-book. Echoing similar views, analysts at Kotak Institutional Equities expect a lower impact from these guidelines compared to the impact from a draft set of guidelines because the incremental provision requirement has been curtailed. The requirement of standard asset provisions for assets under construction is cut from 5 per cent to 1 per cent. "We see this relaxation as yet another step by the regulator toward systemic easing (after the recent relaxations on liquidity, interest rates, PSL, microfinance risk weight and LCR). The headwinds for loan growth are stemming from quality and cost of deposits (LCR compatible deposits), the trade-off between growth and NIM contraction and weak demand for credit from various segments of the economy," the brokerage said. In its report, the brokerage added that it has not seen a reversal in stance from lenders that had tightened their credit filters in retail in the past two years, while they have turned a bit more cautious today on SMEs looking at global factors.
Time of India
15 hours ago
- Business
- Time of India
RBI issues project finance norms for banks, NBFCs
MUMBAI: The Reserve Bank on Thursday issued norms to provide a harmonised framework for financing of projects in infrastructure and non-infrastructure sectors by banks, NBFCs and other regulated entities. The Reserve Bank of India (Project Finance) Directions, 2025 lay down the revised regulatory treatment upon change in the 'date of commencement of commercial operations' (DCCO) of such projects in the backdrop of a review of the extant instructions and analysis of the risks inherent in such financing. The RBI said the directions entail the adoption of a principle-based regime for resolution of stress in project finance exposures, harmonised across regulated entities (REs). It also entails rationalisation of permissible DCCO extensions with an overall ceiling of three years and two years for infrastructure and non-infrastructure sectors, respectively. For the purpose of application of prudential guidelines contained in the latest norms, projects have been broadly divided into three phases -- design phase, construction phase, and operational phase. "In under-construction projects where the aggregate exposure of the lenders is up to Rs 1,500 crore, no individual lender shall have an exposure which is less than 10 per cent of the aggregate exposure," the RBI said. For projects where aggregate exposure of all lenders is more than Rs 1,500 crore, the exposure floor for an individual lender shall be 5 per cent or Rs 150 crore, whichever is higher. Further, a lender shall ensure that all applicable approvals/clearances for implementing/constructing the project are obtained before financial closure. An indicative list of such pre-requisite approvals/clearances includes environmental clearance, legal clearance, regulatory clearances, as applicable to the project, the RBI said. On resolution of stress, it said a lender shall monitor the performance of the project and any buildup of stress on an ongoing basis and shall be expected to initiate a resolution plan well in advance. "Occurrence of a credit event with any of the lenders during the construction phase, shall trigger a collective resolution in terms of the prudential framework," RBI said and added the reference to 'default' in the prudential framework shall be read as 'credit event' for the purpose of project finance accounts, unless specified otherwise. The RBI also said that a project finance account downgraded to NPA for non-compliance can be upgraded only after the account performs satisfactorily post actual DCCO. It further said a lender may recognise income on accrual basis in respect of project finance exposures which are classified as 'Standard'. For NPAs, income recognition shall be as per extant instructions. The Reserve Bank of India (Project Finance) Directions, 2025 shall come into force with effect from October 1, 2025, the central bank said. In May 2024, the RBI had issued draft guidelines on 'Prudential Framework for Income Recognition, Asset Classification and Provisioning pertaining to Advances - Projects Under Implementation'. 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 RBI said the inputs/ feedback received were examined and suitably incorporated while formalising the final directions.
Time of India
17 hours ago
- Business
- Time of India
RBI's New Project Loan Guidelines to Transform Infrastructure Financing, ET Infra
Advt Advt By , ET Online and Agencies Join the community of 2M+ industry professionals. Subscribe to Newsletter to get latest insights & analysis in your inbox. Get updates on your preferred social platform Follow us for the latest news, insider access to events and more. The Reserve Bank of India ( RBI ) has relaxed key norms for project financing, a move that is set to reduce capital provisioning burdens on commercial lenders and enable more efficient funding of infrastructure and industrial ventures such as roads, ports, and power October 1, 2025, the finalised project finance guidelines introduce sector-specific provisioning norms, ease penalties for delays, and provide clearer definitions for credit events. The revised rules come after extensive industry feedback and replace a more stringent draft issued under former RBI Governor Shaktikanta of the major reliefs for banks and NBFCs is the reduction in provisioning rates. For instance, provisioning for delayed projects has been scaled down from the earlier proposed 2.5 per cent to 0.4–0.6 per cent per quarter of delay, depending on whether the project is infrastructure or non-infrastructure. Projects that achieve financial closure before October 1, 2025, are exempt—unless impacted by defaults or major a shift from uniform provisioning, commercial real estate (CRE) projects will now attract 1.25 per cent provision during construction and 1 per cent during operations. CRE-residential housing is set at 1 per cent and 0.75 per cent, respectively, while other project types require only 1 per cent and 0.4 per the RBI has tightened the definition of 'credit events,' excluding ambiguous terms like 'NPV diminution' and focusing instead on material financial stress indicators, such as defaults or extensions of the Date of Commencement of Commercial Operations (DCCO).The updated framework also redefines financial closure as the stage where 90 per cent of funding is contractually committed, and ties regulatory approvals to milestone-based timelines rather than project closure dates—a shift expected to offer lenders and developers greater operational infrastructure projects, DCCO deferrals of up to three years are permitted, while non-infrastructure projects—including CRE—can defer by up to two the RBI retained the original draft guidelines, lenders with heavy exposure—such as Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), which together hold over ₹16 lakh crore in project loans—would have faced significant increases in provisioning, pressuring capital adequacy ratios and reducing new norms are expected to encourage credit flow into long-gestation infrastructure projects, aligning regulatory requirements more closely with sectoral realities and project execution risks.
Indian Express
a day ago
- Business
- Indian Express
RBI relaxes norms for financing of project loans
The Reserve Bank of India (RBI) on Thursday rationalised the guidelines for financing project loans undertaken by banks and non-banking financial companies. The new norms will come into effect from October 1, 2025. In the final norms, the RBI has reduced the standard asset provisioning requirement to 1 per cent for projects that are under construction. In the draft guidelines, issued in May last year, the RBI had asked lenders to maintain a general provision of 5 per cent of the funded outstanding on exposure to projects under implementation at various stages. Project finance refers to the method of funding a project in which the revenues to be generated by the funded project serve as the primary security for the loan, and also as a source of repayment. 'Rationalisation of standard asset provisioning requirement to 1 per cent for projects under construction, which shall gradually increase for each quarter of Date of Commencement of Commercial Operations (DCCO) deferment,' the final norms said. DCCO is the date by which the project is expected to be put to commercial use and completion certificate/provisional completion certificate is issued to the concessionaire. The RBI said that requirements for under-construction commercial real estate (CRE) exposures will be, however, slightly higher at 1.25 per cent. For accounts that have availed of DCCO deferment, lenders will maintain an additional specific provision of 0.375 per cent for infrastructure project loans and 0.5625 per cent for non-infrastructure project loans (including CRE and CRE-Residential Housing), for each quarter of deferment, over and above the applicable standard asset provision. For the applicability of the new norms, the RBI said that projects will be divided into three phases – design phase, construction phase and operational phase. The RBI said that for all projects financed by a lender, it should ensure that financial closure has been achieved and original DCCO is clearly spelt out and documented prior to disbursement of funds; the project specific disbursement schedule vis-à-vis stage of completion of the project is included in the loan agreement; and the post-DCCO repayment schedule has been realistically designed to factor in the initial cash flows. In under-construction projects where the aggregate exposure of the lenders is up to Rs 1,500 crore, the RBI said that no individual lender will have an exposure which is less than 10 per cent of the aggregate exposure. For projects where aggregate exposure of all lenders is more than Rs 1,500 crore, the exposure floor for an individual lender shall be 5 per cent or Rs 150 crore, whichever is higher. A lender should ensure availability of sufficient land/right of way for all projects before disbursement of funds. As per the new norms, a lender will monitor the performance of the project and any build-up of stress on an ongoing basis and will be expected to initiate a resolution plan well in advance.
