RBI Unveils New Framework for Project Finance

The Reserve Bank of India (RBI) has released its final guidelines for project finance, introducing a comprehensive framework for income recognition and asset classification, effective October 1. These guidelines aim to harmonize stress resolution and provide commercial flexibility, while adjusting provisioning norms for construction and operational phases.

The Reserve Bank of India (RBI) announced on Wednesday its comprehensive final directions for Project Finance, set to take effect from October 1. This framework outlines new norms for income recognition, asset classification, and provisioning for loans linked to projects currently under implementation.

The guidelines are a follow-up to the draft issued on May 3, 2024, soliciting stakeholder input on a prudential framework for income recognition and asset classification for projects in progress. The RBI received feedback from nearly 70 entities, including banks, NBFCs, and industry bodies, which shaped the final guidelines.

The new rules introduce a principle-based regime for stress resolution in project finance, aiming for a unified approach across all regulated entities. They rationalize the Date of Commencement of Commercial Operations (DCCO) extension limits to three years for infrastructure projects and two years for non-infrastructure, providing commercial flexibility within these bounds. Provisioning norms are adjusted, with higher initial rates for under-construction projects, decreasing during operational phases, striking a balance between lending flexibility and risk management.

(With inputs from agencies.)