The Reserve Bank of India (RBI) Bank of India had released draft guidelines titled ‘Prudential Framework for Income Recognition, Asset Classification and Provisioning pertaining to Advances – Projects Under Implementation’ on May 3, 2024, inviting stakeholder comments. These draft guidelines aimed to provide a structured yet flexible framework for regulated entities (“REs”) to finance project loans while addressing associated credit risks.
Pursuant to the consultation process, the Reserve Bank of India (RBI) Bank received inputs from various stakeholders, leading to issuance of the final Reserve Bank of India (Project Finance) Directions, 2025, key features of which include:
1. A 𝐩𝐫𝐢𝐧𝐜𝐢𝐩𝐥𝐞-𝐛𝐚𝐬𝐞𝐝 𝐚𝐩𝐩𝐫𝐨𝐚𝐜𝐡 for stress resolution in project finance exposures, with uniform application across all regulated entities;
2. Streamlined guidelines on extensions for the ‘Date of Commencement of Commercial Operations’ (“𝐃𝐂𝐂𝐎”), capped at three years for infrastructure projects and two years for non-infrastructure projects;
3. 𝐄𝐧𝐡𝐚𝐧𝐜𝐞𝐝 𝐚𝐮𝐭𝐨𝐧𝐨𝐦𝐲 𝐟𝐨𝐫 𝐑𝐄𝐬 to determine DCCO extensions within these ceilings based on their own commercial assessment;
4. Standard asset provisioning for under-construction projects set at 1%, increasing progressively with each quarter of DCCO deferment. For under- construction commercial real estate (“CRE”) projects, a higher initial provisioning rate of 1.25% will apply;
5. Projects that have already achieved financial closure will continue to be governed by the existing provisioning norms to ensure smooth transition;
6. During operational phase, standard asset provisioning shall be reduced to:
i. 1.00% for CRE,
ii. 0.75% for CRE – Residential Housing (CRE-RH),
iii. 0.40% for all other project finance exposures. These Directions will come into effect from October 1, 2025.
The RBI press release can be accessed at https://lnkd.in/d-Ap-8Ns.