RBI Directions 2025 reshape India’s Project Finance framework

On 19-6-2025, the Reserve Bank of India (‘RBI’) notified the ‘Reserve Bank of India (Project Finance) Directions, 2025’ to establish a harmonised framework for financing of projects in infrastructure and non-infrastructure projects by banks, Non Banking Financial Companies (‘NBFCs’), and other regulated entities. These Directions will come into effect from 1-10-2025.

Key Points from the Reserve Bank of India (Project Finance) Directions, 2025:

1. With the aim to unify various lending rules across the banks, NBFCs, cooperative banks, and financial institutions, these Directions are introduced to recognise the risks and structure of project finance addressing both infrastructure and non-infrastructure sectors, including Commercial Real Estate and CRE-Residential Housing.
2. RBI’s Prudential Framework for Resolution of Stressed Assets, introduced in 2019, laid the groundwork for resolution protocols which did not cover regulatory concerns for project finance accounts, resulting in delayed commencement of commercial operations (Date of Commencement of Commercial Operations).
3. These Directions are applicable to:
   • All Commercial Banks (excl. Payment/Local Area/RRBs);
   • All NBFCs and Housing Finance Companies;
   • Primary (Urban) Cooperative Banks;
   • All India Financial Institutions.
4. Projects that achieve financial closure before 1-10-2025 will not be subject to the new rules, unless a fresh credit event or material contractual change arises after that point.
5. New directions introduce project phase and governance into 3 levels- Design, Construction, and Operational phases, enabling more clarity and oversight between financial structuring and project.
6. The disbursement and repayment schedules will have to align with project milestones and the economic life of the asset while repayment tenures cannot exceed 85% of this lifespan.
7. To ensure real-time project tracking, progress assessments are to be confirmed by independent engineers or architects.
8. The Directions redefine stress recognition and resolution in project finance by reporting them to RBI’s Central Repository of Information on Large Credit.
9. RBI mandates the creation of digital project databases for all project finance exposures to capture key parameters which have to be updated within 15 days of any change notified, in order to supervise and manage risk.

10. RBI’s Directions uphold clear penalties for non-compliance, reinforcing these as binding regulations.