RBI eases project finance rules, lending boost seen for banks and nbfc sector; IREDA, REC & PFC in focus
In a major relief for banks and non-banking financial companies (NBFCs), the Reserve Bank of India (RBI) has significantly eased its proposed prudential norms on project finance. According to Citi Research, the final directions—effective October 1, 2025—are far more lender-friendly than the draft guidelines issued earlier, particularly in terms of general provisioning norms.
Under the final framework, general provisioning requirements for project finance exposures—both infrastructure and non-infrastructure (including commercial real estate or CRE)—have been substantially reduced. For loans in the construction phase, the provisioning has been capped at 1.00% (1.25% for CRE), a significant relaxation from the earlier phased-in draft requirement of 5% by FY27 (2% in FY25, 3.5% in FY26, 5% in FY27).
For exposures in the operational phase (i.e., post commencement of principal and interest repayments), provisioning has been scaled down to: 1.00% for CRE
0.75% for CRE-RH (residential housing)
0.40% for all other categories
This is markedly softer than the earlier suggested 2.5% in the draft guidelines.
For projects where the Date of Commencement of Commercial Operations (DCCO) has been deferred but remains classified as standard, the RBI has prescribed additional specific provisions. These are set at 0.375% per quarter for infrastructure loans, and 0.5625% per quarter for non-infra loans, including CRE and CRE-RH segments.
Citi believes this shift removes a major overhang for lenders, particularly public sector banks and infrastructure-focused financial institutions like PFC, REC, and IIFCL. The biggest concern post the draft circular was a sharp pullback in long-gestation project lending owing to the capital burden posed by high provisioning. That risk now appears largely mitigated.
By easing the regulatory cost of lending to large, long-term projects, the RBI has significantly improved the economic viability of project finance, which is essential for funding India's infrastructure ambitions. The move may also unlock higher credit growth in the infrastructure segment in FY26 and beyond.
Ahmedabad Plane Crash
Markets Desk at BusinessUpturn.com
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Upturn
a day ago
- Business Upturn
Nuvama raises TVS Motor share price target by Rs 200 following Q1 results
By Markets Desk Published on July 31, 2025, 22:38 IST Shares of TVS Motor Company may remain in focus after Nuvama Institutional Equities raised its target price by ₹200 to ₹3,400, citing better-than-expected Q1 earnings and an improving outlook across both domestic and export markets. In its latest update, Nuvama retained a 'Buy' rating on the stock and highlighted robust earnings growth potential led by rising market share, margin expansion, and a positive volume outlook. Q1 performance beats estimates on profitability For the quarter ended June 2025 (Q1FY26), TVS Motor reported a 20% year-on-year increase in revenue to ₹10,080 crore, which was broadly in line with Nuvama's expectations. However, EBITDA jumped 32% YoY to ₹1,260 crore, beating estimates, largely due to lower other expenses. Growth momentum across markets According to the brokerage, the two-wheeler maker is witnessing strong traction in both domestic and export markets. Nuvama believes TVS Motor is steadily gaining market share, with its domestic share likely to rise from 18% in FY25 to 19% by FY28. The brokerage also expects margin expansion going forward, aided by better product mix, benefits from the government's PLI scheme, and internal cost savings initiatives. Earnings forecast and valuation Nuvama forecasts a revenue CAGR of 14% and EPS CAGR of 20% over FY25–28E, supported by scale and profitability improvements. The target price of ₹3,400 is based on 35x Sep-27E EPS, up from the earlier base of Mar-27E, and includes a valuation of ₹148/share for TVS Credit. Ahmedabad Plane Crash Markets Desk at
Bloomberg
2 days ago
- Bloomberg
India Interest Rate Cut Hopes Dim as Trump Talks High Tariffs
US President Donald Trump's surprise tariff announcement is set to weigh on the Reserve Bank of India 's monetary policy decision next week even as a final word on the trade deal is awaited. While most economists were not expecting a back-to-back cut in interest rates after June's unexpectedly large 50-basis-point reduction, Governor Sanjay Malhotra's recent comments had revived hopes of lower rates in the August 6 policy review. More so, as inflation fell to its lowest level in more than six years in June.
Yahoo
2 days ago
- Yahoo
Trump tariffs rattle India's markets, cloud growth outlook
By Jaspreet Kalra, Nikunj Ohri and Bharath Rajeswaran MUMBAI (Reuters) -India's rupee plunged toward a record low and equity indexes declined on Thursday after U.S. President Donald Trump slapped steeper-than-expected tariffs on Indian goods, with analysts warning of sustained pressure on the country's growth. The 25% tariffs announced could shave off the South Asian nation's growth in 2025-26 by up to 40 basis points, with the threat of additional penalties further clouding the outlook, economists said. India's benchmark equity indices, the Nifty 50 and BSE Sensex, fell about 0.6% each, while the rupee declined to an over five-month low of 87.74 before paring losses amid likely dollar-selling intervention by the central bank. The rupee is within touching distance of the record low of 87.95 it hit in February. "88.00 looms as a big level on the charts and likely a focus for RBI as well," said Brad Bechtel, head of global FX at Jefferies. "Will be interesting to see if they allow the currency to depreciate through that level to offset the impact of tariffs or if they fight to maintain currency 'stability'. I think they let it go through, in which case 90 becomes a big level to watch." IMPACT ON GROWTH AND INVESTMENT Analysts warned that a dent to New Delhi's manufacturing ambitions could hamper growth in the world's fifth-largest economy. "If these tariffs remain in place, they could undermine India's growing appeal to businesses seeking trade diversion in low-value-added manufacturing sectors," said Raphael Luescher, Co-Head of EM equities at Vontobel. Goldman Sachs economist Santanu Sengupta estimated a 30-bps hit to growth once the tariffs are imposed, adding that "elevated policy uncertainty in the U.S. can cause Indian firms, particularly those exposed to U.S. tariffs, to postpone investment decisions." However, DBS Bank said downside risks are likely to be offset by fiscal support for labour-intensive industries and smaller exporting firms, alongside further rate cuts. "Despite limited tariff arbitrage, we are still of the view that the economy will continue to benefit from trade diversion flows as manufacturers diversify and derisk from other production bases, including China," DBS economists wrote. GEOPOLITICAL BALANCING ACT Alison Shimada, head of Total Emerging Markets Equity at Allspring Global Investments, said the direct macroeconomic impact may be limited given India's exports to the U.S. account for just 2–3% of GDP. But she noted that "India wishes to maintain constructive trade relations with both Russia and the U.S.," and could consider increasing imports from the U.S. to ease tensions. "The stock market may react negatively in the short term as the INR is depreciating on the back of this news," Shimada added. "However, there is a level of scepticism in the markets until the final agreements are released. Therefore, fundamentals will remain a key focus since India earnings season is ongoing." The Indian government expects the economy to grow at 6.3%–6.8% in 2025–26. (Additional reporting by Chandini Monappa and Vivek Kumar M, writing by Swati Bhat, editing by Saad Sayeed)
