RBI sets new project finance norms for banks; stricter provisioning, clear rules on delays from Oct 1

In a move aimed at tightening the regulatory framework around project lending, the Reserve Bank of India (RBI) has issued fresh guidelines for banks financing infrastructure and commercial real estate (CRE) projects. These norms, which will come into effect from October 1, 2025, seek to bring uniformity in how banks handle delays and provisioning for under-construction projects.

Under the new rules, the Date of Commencement of Commercial Operations (DCCO)  or the date from which the project is expected to start generating revenue  becomes a key benchmark. RBI has allowed flexibility in extending the DCCO under certain limits:

1) For infrastructure projects, banks can extend the DCCO by up to three years.

2) For non-infra projects, a maximum extension of two years is permitted.

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However, any delay beyond the permissible window will attract stricter provisioning. Banks will be required to gradually increase provisioning every quarter in case of extended delays.

Additionally, banks will now have to make initial provisioning of at least 1 per cent of the loan amount at the time of disbursal for projects under construction. This is aimed at building a buffer against potential cost or time overruns.

For Commercial Real Estate (CRE) projects such as malls and office spaces, provisioning will begin at 1.25 per cent. In the case of CRE-Residential Housing (CRE-RH) projects, those built for sale,  provisioning will start at 0.75 per cent, while other project loans will carry a 0.40 per cent provisioning rate.

Once the project begins to generate revenue as per the scheduled DCCO, these provisioning requirements will be gradually reduced.

Notably, projects that have already achieved financial closure before the new norms kick in will continue to be governed by the existing framework.

These measures aim to reduce credit risk in the banking system and enforce discipline in project execution, especially in sectors prone to delays.