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RBI News | 24 June | RBI Eases Provisioning Norms for Infrastructure Loans: Relief for Lenders & Boost for Project Finance

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Key Highlights | RBI News | 24 June 

  • RBI reduces provisioning requirement for under-construction infra loans to 1% from proposed 5%.

  • 1.25% provisioning mandated for commercial real estate projects under construction.

  • New rules effective from October 1, 2025.

  • Project deadline extensions capped to ensure discipline.

RBI Offers Relief to Lenders: Infrastructure Financing Gets a Much-Needed Boost |

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In a crucial policy relaxation aimed at reviving infrastructure lending, the Reserve Bank of India (RBI) has significantly eased its provisioning norms for loans extended to under-construction infrastructure and commercial real estate projects.

The updated framework, which will take effect from October 1, 2025, reduces the earlier proposed provisioning requirement of 5% to just 1% for infrastructure loans still under construction — following strong feedback from the banking industry.

This move is widely seen as a credit-positive shift that may help unlock stalled infrastructure financing and reduce the burden on lenders’ balance sheets.

Why This Matters: Provisioning Rules & Their Impact|

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Provisioning refers to the funds that banks and NBFCs must set aside as a buffer against potential loan defaults. Higher provisioning affects a bank’s capital availability and loan disbursement capacity.

In May 2024, the RBI had floated a draft framework proposing that banks should set aside 5% of the loan amount for under-construction infrastructure projects due to the sector’s historically high default risks and frequent project delays.

However, in response, lenders argued that the high provisioning could discourage fresh investments, especially at a time when India needs massive infrastructure growth.

The RBI has now softened its stance:

🔹 1% provisioning for under-construction infrastructure loans
🔹 1.25% provisioning for under-construction commercial real estate loans

This is a significant drop from earlier expectations, making the financial sector more optimistic about project financing.

The Reason Behind the Change: Lending Woes in Infrastructure |

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The infrastructure sector in India has long faced hurdles like:

  • Delays in land acquisition

  • Regulatory bottlenecks

  • Optimistic revenue projections

  • Unrealistic completion timelines

All of these contribute to loan defaults and lender hesitancy. The earlier high-risk classification of such projects meant banks had to maintain steep provisions, making it unattractive to lend.

By easing provisioning norms, the RBI is encouraging more project finance lending — a critical component for realizing India’s infrastructure dreams under schemes like PM Gati Shakti and the National Infrastructure Pipeline (NIP).

What About Real Estate Projects?

The new framework doesn’t just stop at infrastructure.

For under-construction commercial real estate projects, lenders must now set aside 1.25% of the loan value — a prudent step given the cyclicality and market fluctuations in real estate.

This move strikes a balance between risk management and credit flow, ensuring developers can continue construction while lenders remain protected.

What’s New in the Policy? – Quick Overview |

RBI News

Component Old (Proposed) New Rule
Infra Loan Provisioning 5% 1%
Commercial Real Estate NA / Varied 1.25%
Extension for Infra Projects Up to 5 years (earlier) Max 3 years
Extension for Non-Infra Projects Often unregulated Max 2 years
Retrospective Impact Yes (in some cases) No – Only prospective

Expert Take: Limited Impact, but Positive Direction

According to A M Karthik, Senior VP at ICRA:

“The impact of the new provisioning rules will be limited, as actual provisioning levels were already close to the new thresholds. However, the clarity and uniformity in guidelines will definitely help in smoother implementation and lender confidence.”

Additional Guardrails Introduced by RBI

The RBI also announced tighter controls to avoid misuse of extended deadlines:

  • Maximum delay allowed for infrastructure projects: 3 years

  • Maximum delay for non-infra projects: 2 years

  • Lenders have flexibility to grant extensions within these timelines based on commercial assessment.

Projects already financed will continue under existing norms, ensuring stability and predictability for banks.

What It Means for You: Borrowers, Banks & Investors

For Borrowers (Developers/Builders):

  • Easier access to credit for infrastructure and real estate

  • Lower project costs due to reduced lender provisioning

For Banks/NBFCs:

  • Greater incentive to lend to large projects

  • Reduced strain on balance sheets

For Investors & Credit Analysts:

  • Enhanced credit growth in capital-intensive sectors

  • Potential for better project execution and faster economic growth

Final Word |

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With this new framework, the RBI is walking a tightrope — balancing the need for financial prudence with the urgency to revitalize India’s infrastructure sector. Lower provisioning norms offer breathing space for banks and real estate developers, and could finally unleash long-pending projects stuck in the pipeline.

Keep watching Credit Samadhaan for in-depth updates on RBI policies, credit score impacts, and how these changes affect you as a borrower or investor.