Navigating the New Reserve Bank of India Project Finance Directions: Key Insights for Stakeholders

The Project Finance Directions 2025, published by the Reserve Bank of India (“RBI”), offer a standardized and organized framework for project financing. Particularly for stressed assets, these guidelines are intended to enhance regulatory clarity, risk management, and resolution planning. Stakeholders like commercial banks, primary cooperative banks, non-banking financial companies (“NBFCs”), and All India Financial Institutions (“AIFIs”) should be ready for operational changes considering the implementation date of October 1, 2025.

It is standardizing the financing requirements for both infrastructure and non-infrastructure projects, which is one of the main modifications. It includes the residential and commercial real estate sectors, which have historically had different legal requirements. The RBI aims to make up compliance and enhance financial discipline among institutions by establishing a single framework. AIFIs is about ready for the operational changes.

Stakeholders should comprehend the three project phases that RBI has established in order to successfully navigate these directions.

For application of prudential guidelines contained in these directions, projects shall be broadly divided into three phases, namely:

(a) Design Phase: This is the first phase, which starts with the genesis of the project and includes, inter alia, designing, planning, and obtaining all applicable clearances/approvals till its financial closure.

(b) Construction Phase: This is the second phase, which begins after the financial closure and ends on the day before the actual Date of Commencement of Commercial Operations (“DCCO”).

(c) Operational Phase: This is the last phase which starts with the commencement of commercial operation by the project on the day of the actual DCCO and ends with full repayment of the project finance exposure [1].

When the developers understand each and every step, they can execute laws and guarantee adherence to law throughout the project’s duration. These guidelines specify important prudential requirements for loan approval. Before releasing funds, lenders must provide evidence of financial closure. Repayment plans ought to be in line with anticipated cash flows following the DCCO. By creating repayment plans based on realistic performance expectations, these requirements aim to lower risk exposure. There has also been more on monitoring and resolution.

Now it is expected of financial institutions to monitor project performance proactively and identify stress early on. This prevents the situation from worsening and enables prompt action. Lenders must work together to create a collective resolution plan that conforms with the RBI’s Prudential Framework in the event that a credit event takes place during the construction phase.

To maintain transparency in the financial ecosystem, these incidents must also be reported right away to the Central Repository of Information on Large Credit (“CRILC”). Certain provisions apply if resolution planning calls for an extension of the DCCO timeline. Extensions of up to three years are available for infrastructure projects. Extensions of up to two years are feasible for non-infrastructure projects.

Under these resolution plans, financing cost overruns are allowed as long as they adhere to the RBI’s regulations. This framework preserves oversight while promoting project continuity. For earnings from regular classified accounts, lenders are permitted to recognize income using the accrual method. Depending on whether the project is operational or still in construction, different provisioning requirements apply, and financial buffers must always be in line with risk levels. Under these guidelines, data management and regulatory compliance are crucial pillars.

Lenders are supposed to keep the frequent updates on the database, covering the important facets of project finance. Additionally, the resolution plans put in place to increase the trust and confidence between market participants and regulatory bodies should be open and disclosed in financial statements. In the conclusion the stakeholders must respond to the changes in a way that is as proactive and thoughtful and meaningful as the RBI implements these guidelines. To maintain the resilience and clarity, developers and financiers must comprehend the new laws. [2]