RBI suggests stricter regulations for project finance – Banking & Finance News

The Reserve Bank of India (RBI) has issued new guidelines for lenders regarding provisions for loans extended to under-construction projects. According to the draft guidelines posted on the central bank’s website, lenders are now required to maintain a provision of 5% for such loans, which can be gradually made in phases until FY27.

Once the project transitions into the operational phase, the provisions can be reduced to 2.5% of the funded loans. Further reduction to 1% of the funded outstanding is possible if the project meets certain criteria, including positive net operating cash flow and a decline in total long-term debt with lenders.

Previously, lenders were directed to maintain 0.4% provisions for standard project loans. The new guidelines also address projects financed under consortium arrangements, setting exposure floors for individual lenders based on the aggregate exposure to the project.

RBI emphasized the importance of monitoring project stress and initiating resolution plans in advance. In case of adverse credit events during the construction phase, a collective resolution will be triggered according to the central bank’s stressed assets resolution norms.

The draft circular is open for public feedback until June 15. Lenders are urged to comply with the new provisions and ensure proactive management of project risks to maintain financial stability and support sustainable project development.