FRAMEWORK | To ensure a principle-based regime for resolution of stressed assets

FPJ News Service mumbai

The Reserve Bank on Thursday issued norms to rationalise the existing guidelines for all regulated entities which undertake project finance. “The provisions of these directions shall apply to the project finance exposures of all commercial banks (including small finance banks but excluding payments banks, local area banks and regional rural banks), all NBFC (including housing finance companies, all primary (urban) cooperative banks and all India financial institutions, the apex bank said.

The Project Finance Directions, 2025 shall come into force with effect from October 1, 2025.

The directions lay down the revised regulatory treatment upon change in the ‘date of commencement of commercial operations’ of such projects in the backdrop of a review of the extant instructions and analysis of the risks inherent in such financing. The RBI said the directions entail the adoption of a principle-based regime for resolution of stress in project finance exposures, harmonised across regulated entities.

It also entails rationalisation of permissible ‘date of commencement of commercial operation’ extensions with an overall ceiling of three years and two years for infrastructure and non-infrastructure sectors, respectively. For the purpose of application of prudential guidelines contained in the latest norms, projects have been broadly divided into three phases-design phase, construction phase, and operational phase.

“In under-construction projects where the aggregate exposure of the lenders is up to Rs 1,500 crore, no individual lender shall have an exposure which is less than 10% of the aggregate exposure,” the RBI said. For projects where aggregate exposure of all lenders is more than Rs 1,500 crore, the exposure floor for an individual lender shall be 5% or Rs 150 crore, whichever is higher.

Further, a lender shall ensure that all applicable approvals/clearances for implementing/constructing the project are obtained before financial closure. An indicative list of such pre-requisite approvals/clearances includes environmental clearance, legal clearance, regulatory clearances, as applicable to the project.