RBI issues project finance directions, banks to provide 1-1.25% for projects under construction
The Hindu
RBI issues Project Finance Directions 2025 for regulated entities, reducing asset provisioning requirements for under construction projects.
The Reserve Bank (RBI) on Thursday issued RBI (Project Finance) Directions 2025 asking Regulated Entities (REs) to maintain general provision of 1.25% for under construction Commercial Real Estate (CRE) loans and 1% for infrastructure projects under construction.
However, asset provisioning requirements will be reduced at the time of operational phase.
This rate is far lower than the of provision of 5% proposed in the draft for under construction projects, 2.5% in the operational stage and 1% at cash generation stage to cover the loan.
The directions have been issued to institutionalise a framework for the REs for financing project loans, while addressing the underlying risks.
The directions entail adoption of a principle-based regime for resolution of stress in project finance exposures, harmonised across REs and rationalisation of permissible ‘date of commencement of commercial operations’ (DCCO) extensions with an overall ceiling of three and two years for infrastructure and non-infrastructure sectors, respectively.
The directions provide flexibility to REs in extending the DCCO within the above ceilings, based on their commercial assessments.
The standard asset provisioning requirement has been rationalised to 1% for projects under construction, which will gradually increase for each quarter of DCCO deferment.
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