Relief for banks as RBI slashes project finance provisions to 1-1.25% from October 1

In a big relief to banks, the Reserve Bank has issued the final directions on project finance, asking lenders to maintain general provision of 1.25%, as against the 5% proposed in the draft norms, on commercial real estate, and 1% each on commercial real estate-residential housing and other portfolios during the construction phase.

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The new relaxed norms will come into force from October 1.

In February, governor Sanjay Malhotra had said project financing norms would get deferred by a year and are not to going be implemented before the end of March 2026. This is the second major regulatory step that the RBI under Malhotra has taken after putting off the expected credit loss guidelines.

The RBI further said on Thursday that this new regime for resolution of exposure to stressed assets has also been harmonized across regulated entities. Under the new norms, banks shall have to maintain 1% general provision on commercial real estate projects during the operational phase after commencement of repayment of interest and principal, 0.75% on residential housing, and 0.40% on all other projects, the regulator said.