Mumbai— The Reserve Bank of India’s (RBI) recently issued project finance guidelines are expected to enhance risk management practices among lenders and bring uniformity to regulations across financial institutions, according to a report by Crisil released Thursday.
The RBI’s final directions, issued on June 19, will take effect from October 1.
“These updated guidelines mark a significant improvement over the draft released in May 2024, especially in terms of ease of doing business for lenders,” said Subha Sri Narayanan, Director at Crisil Ratings. “The provisioning requirements have been notably reduced — not just for projects under construction, but also for those already operational.”
Crisil noted that the guidelines apply only on a prospective basis, meaning the impact on banks’ credit costs will be lower than previously anticipated. The removal of the proposed six-month cap on the moratorium period after the commencement of commercial operations (DCCO) is also expected to help lenders better align loan structures with projected cash flows.
The report also highlighted several enhancements that will strengthen the overall risk framework for project finance. Chief among them is the introduction of limits on the number of lenders and their individual exposure within a consortium. This move is expected to encourage greater accountability among participating banks, improving credit appraisal, risk assessment, and due diligence throughout the loan lifecycle. Fewer stakeholders may also lead to faster and more coordinated decision-making.
Under the new framework, the base level of provisioning for under-construction projects will rise to 1 percent, and slightly higher at 1.25 percent for commercial real estate (CRE) projects — up from the current 0.4 to 1 percent range. These rates will increase further depending on the extent of DCCO deferrals, reflecting the greater risks associated with projects still in development.
The RBI has also tightened rules around DCCO deferments. For infrastructure projects, the total permitted delay to maintain a ‘standard’ asset classification has been capped at three years, regardless of the reason. For non-infrastructure projects, the cap remains at two years.
While these changes could make it more difficult for lenders to manage delays caused by protracted litigation, Crisil noted that the stricter framework encourages earlier identification of financial stress and timelier intervention, albeit with higher provisioning requirements. (Source: IANS)
