MUMBAI: In a big relief to banks, the Reserve Bank has issued the final directions on project finance, asking lenders to maintain general provision of 1.25%, as against the 5% proposed in the draft norms, on commercial real estate, and 1% each on commercial real estate-residential housing and other portfolios during the construction phase. The new relaxed norms will come into force from October 1.
In February, governor Sanjay Malhotra had said project financing norms would get deferred by a year and are not to going be implemented before the end of March 2026.
This is the second major regulatory step that the RBI under Malhotra has taken after putting off the expected credit loss guidelines.
The RBI further said on Thursday that this new regime for resolution of exposure to stressed assets has also been harmonized across regulated entities.
Under the new norms, banks shall have to maintain 1% general provision on commercial real estate projects during the operational phase after commencement of repayment of interest and principal, 0.75% on residential housing, and 0.40% on all other projects, the regulator said.
The provisioning was sharply lower than what was mentioned in the draft norms, which proposed that banks set aside a provision of 5% of the loan amount when the project is in the construction phase, reduced to 2.5% once it becomes operational and then down to 1% after the project starts generating cash sufficient to cover lenders’ repayment.
AM Karthik, a senior vice-president & co-group head of financial sector ratings at Icra Ratings, said, “The final guidelines come as a relief to lenders as for operational projects the extant requirement continues at 0.4%, which is lower than 1-2.5% indicated in the earlier draft. For under-construction projects, provisions are kept at 1% vis-a-vis 5% suggested in the draft. This is however higher than 0.4% applicable for banks now.”
