The Reserve Bank of India (RBI) has issued final directions on project finance, significantly reducing the general provision requirements for banks. The new relaxed norms, effective from October 1, will help alleviate financial stress and boost lending in the real estate sector.
RbiProject FinanceReal EstateProvisionsStress ResolutionReal EstateJun 19, 2025
Banks will have to maintain a 1.25% general provision on commercial real estate projects and 1% on commercial real estate-residential housing and other portfolios during the construction phase. For the operational phase, the provision is 1% on commercial real estate, 0.75% on residential housing, and 0.40% on all other projects.
The new relaxed norms will come into effect from October 1, 2025.
The initial draft norms proposed that banks set aside a provision of 5% of the loan amount during the construction phase, reduced to 2.5% once the project becomes operational, and then down to 1% after the project starts generating sufficient cash to cover lenders' repayment.
The impact on NBFCs is expected to be limited, as they already provide sufficient provisions as per the expected credit loss assessment. The new provisions are prospective from October 1, 2025, which further minimizes the overall impact.
Before fund disbursement, lenders must ensure that there is sufficient land availability—50% for infrastructure projects under the Public-Private Partnership (PPP) model and 75% for all other projects.
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