RBI Reduces Provisioning Requirement for Project Finance, Effective from October 1, 2025
The Reserve Bank of India (RBI) has announced new provisioning requirements for project finance, significantly lowering the rates for commercial real estate and residential housing during the construction phase. These directives will come into effect from October 1, 2025, providing much-needed relief to lenders and developers.
RbiProject FinanceProvisioningReal EstateConstructionReal Estate NewsJun 19, 2025
This move was much lower than the 5% provisioning initially proposed in the draft rules for all project finance, irrespective of the sector-specific default risk. Stakeholders had expressed reservations about the higher proposed rate, and the RBI has taken these concerns into consideration.
Banks will have to maintain 1% general provisioning on commercial real estate projects during the operational phase after the commencement of repayment of interest and principal; 0.75% on residential housing; and 0.40% on all other projects, the central bank said. This tiered approach aims to balance the need for prudential risk management with the financial viability of projects.
In May 2024, the RBI consulted with around 70 entities, including banks, NBFCs, and industry associations, on the draft guidelines for the ‘Prudential Framework for Income Recognition, Asset Classification and Provisioning pertaining to Advances — Projects Under Implementation.’ The feedback received from these consultations played a crucial role in shaping the final directives.
The new directives will also allow banks to extend the permissible date of commencement of commercial operations (DCCO) with an overall ceiling of two and three years for infrastructure and non-infrastructure sectors, respectively. This flexibility is intended to provide more breathing room for projects facing delays due to unforeseen circumstances.
Under-construction projects where financial closure has already been achieved will continue to be guided by the extant provisioning norms, the RBI added. This ensures that ongoing projects are not unduly impacted by the new rules.
The RBI's decision to reduce provisioning requirements is expected to provide a significant boost to the real estate and construction sectors. By lowering the financial burden on lenders, it should encourage more investment in these areas, ultimately contributing to economic growth and development.
Overall, the new provisioning requirements strike a balance between maintaining financial stability and supporting the growth of key sectors. The RBI's proactive approach to stakeholder engagement and feedback has resulted in a set of guidelines that are both practical and effective.
Frequently Asked Questions
What is the new provisioning requirement for commercial real estate during the construction phase?
The new provisioning requirement for commercial real estate during the construction phase is 1.25%.
When will the new provisioning requirements come into effect?
The new provisioning requirements will come into effect from October 1, 2025.
How does the new provisioning rate compare to the initially proposed rate?
The new provisioning rate of 1.25% for commercial real estate and 1% for residential housing during the construction phase is significantly lower than the initially proposed 5% rate.
What is the provisioning requirement for commercial real estate during the operational phase?
The provisioning requirement for commercial real estate during the operational phase is 1%.
What is the permissible extension for the date of commencement of commercial operations (DCCO)?
The permissible extension for the date of commencement of commercial operations (DCCO) is two years for infrastructure projects and three years for non-infrastructure projects.
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