RBI’s New Project Finance Norms Offer Relief to NBFCs: REC & PFC Poised for Growth

In a landmark regulatory move, the Reserve Bank of India (RBI) has released its final guidelines for project finance lending, introducing a more lenient framework for provisioning norms and offering relief to key non-banking financial companies (NBFCs) like PFC and REC. These norms, applicable from October 1, 2025, are expected to enable smoother transitions for long-term infrastructure financing while safeguarding financial stability.

Why in News?

The RBI’s final norms for project finance were released recently and are attracting market attention due to their softer provisioning rules, non-retrospective application, and their potential positive impact on large infrastructure lenders. Notably, brokerages like Motilal Oswal have reiterated their buy rating on major NBFCs including REC and PFC, reflecting increased investor confidence.

Key Highlights of the Final RBI Guidelines

• Effective Date: Applicable to loans sanctioned on or after October 1, 2025.

Provisioning Norms Eased,

For under-construction projects:

• 1% standard provisioning
• 1.25% for Commercial Real Estate (CRE).

Once operational

• 0.4% for general project finance.
• 0.75% for CRE-Residential Housing.
• 1% for CRE projects.
• No Retrospective Application: Existing loans that have achieved financial closure are exempt from the new norms.

Flexibility on Project Delays

• Up to 3 years allowed for infrastructure projects.
• Up to 2 years for non-infrastructure projects.
• Additional Provisioning required for delay deferments but reversed after commencement.

Objectives of the Guidelines

• Standardize project finance lending norms across banks and NBFCs.
• Prevent disruption in ongoing infrastructure financing.
• Ensure orderly transition to the new regime.
• Enhance financial system stability.

Impact on NBFCs

• PFC and REC—both major financiers of infrastructure—are well-positioned.

Existing Stage 1 & 2 provisioning,

• REC: 0.95%
• PFC: 1.13%
• Minimal impact on balance sheets due to adequate buffers.
• Potential to pass on costs to borrowers via pricing adjustments.

Static Facts

• PFC (Power Finance Corporation) and REC (Rural Electrification Corporation) are top infrastructure NBFCs under the Ministry of Power.
• Both are ‘Maharatna’ CPSEs and play a critical role in financing power and allied infrastructure.