RBI's New Project Finance Norms: Effective from October 1, 2025
The Reserve Bank of India (RBI) has released new project finance norms, effective from October 1, 2025, requiring banks to maintain general provisions of 1-1.25% during the construction phase of real estate projects.
RbiProject FinanceReal EstateBanksProvisionsReal Estate NewsJun 20, 2025
Banks shall have to maintain 1 percent general provisions on commercial real estate projects during the operational phase after the commencement of repayment of interest and principal, and 0.75 percent on residential housing (CRE-RH), while 0.40 percent on all other projects, the regulator said.
The norms will come into effect from October 1 this year, said RBI, adding that this regime for resolution of exposure to stressed assets has been harmonized across regulated entities. In February, RBI Governor Sanjay Malhotra had announced that project financing norms would be deferred by a year and would not be implemented before March 31, 2026.
The new norms aim to strengthen the financial system by ensuring that banks have adequate provisions to cover potential losses during the construction phase of projects. This is particularly important for the real estate sector, which has seen a significant number of stressed assets in recent years.
The Reserve Bank of India (RBI) has been working to improve the regulatory framework for project finance to ensure that banks and financial institutions have robust risk management practices. These norms are expected to enhance the resilience of the banking sector and reduce the likelihood of future asset quality issues.
The new provisions will require banks to maintain higher capital buffers during the construction phase, which is typically the riskiest part of a project. This will help banks to better manage their exposure to potential defaults and ensure that they have sufficient funds to cover any losses that may arise.
The RBI's decision to implement these norms is part of a broader effort to strengthen the regulatory framework for project finance in India. The central bank has been working closely with banks and other financial institutions to ensure that they are well-prepared for the new requirements.
The new norms are expected to have a significant impact on the real estate sector, particularly on commercial real estate and residential housing projects. Developers and builders will need to ensure that they have adequate funding and robust risk management practices in place to meet the new requirements.
In conclusion, the RBI's new project finance norms, effective from October 1, 2025, are a significant step towards strengthening the financial system and reducing the risk of asset quality issues. These norms will require banks to maintain higher provisions during the construction phase of projects, which will help to ensure that they have sufficient funds to cover potential losses. The real estate sector will need to adapt to these new requirements, and developers and builders will need to ensure that they have robust risk management practices in place.
Frequently Asked Questions
When will the new project finance norms come into effect?
The new project finance norms will come into effect from October 1, 2025.
What are the general provisions required during the construction phase?
Banks will need to maintain 1.25 percent general provisions on Commercial Real Estate (CRE) and 1 percent each on Commercial Real Estate-Residential Housing (CRE-RH) and other portfolios during the construction phase.
What are the provisions required during the operational phase?
Banks will need to maintain 1 percent general provisions on commercial real estate projects during the operational phase after the commencement of repayment of interest and principal, and 0.75 percent on residential housing (CRE-RH), while 0.40 percent on all other projects.
Why are these new norms being implemented?
The new norms are being implemented to strengthen the financial system and reduce the risk of asset quality issues, particularly in the real estate sector.
How will these norms impact the real estate sector?
The new norms will require developers and builders to ensure they have adequate funding and robust risk management practices in place to meet the higher provisions required during the construction phase.
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