PFC, REC, HUDCO, IREDA Share Price in Focus; RBI Slashes Project Finance Provisions from October

The Reserve Bank of India (RBI) has delivered a significant breather for banks by sharply reducing provisioning norms for project finance. The change is set to be effective from October 1, 2025, making it easier for lenders to handle credit exposure in infrastructure and commercial real estate projects.

PFC, REC, HUDCO and IREDA Share Price in Focus

In the early trading session on June 20, Power Finance Corporation Ltd. (PFC) share price rose by as much as 4%, while REC share price increased 2.6%. HUDCO share price was trading nearly 2% higher, and IREDA recorded a 1.5% gain during early trading hours.

According to the recently finalised guidelines, the Provision Coverage Ratio (PCR) has been set at 1% of the total project cost for infrastructure projects currently under construction, and at 1.25% for those related to under-construction commercial real estate.

RBI Slashes Project Finance Provisions Starting October 

In its finalised framework released this week, the RBI stated that banks must maintain a general provision of 1.25% on commercial real estate (CRE) portfolios in the construction phase, instead of the steep 5% originally proposed in the draft regulations. For CRE-residential housing and all other project finance categories in the construction phase, a general provision of 1% will now suffice.

This announcement marks a significant shift from earlier expectations and is viewed as a positive step for the banking sector’s balance sheet management. The draft norms had caused unease as they suggested provisioning levels far higher, threatening to strain lenders’ profit margins during project execution phases.

Operational Phase Provisions Also Relaxed

For projects in the operational phase, after repayment of interest and principal begins the reduced provisioning structure continues as follows: 1% for CRE-operational, 0.75% for residential housing operational, and 0.40% for all other projects. These figures are considerably lower compared to the earlier suggested 2.5% to 1% range in the draft norms.

These new norms will be applicable prospectively from October 1, 2025, ensuring that existing provisions remain unaffected. This guidance offers clarity to lenders and helps avoid abrupt changes in project funding strategy and resource allocation.

Deferment Provisions and Resolution Requirements

The RBI has also established clear guidelines regarding deferment in the Date of Commencement of Commercial Operations (DCCO). If a project’s DCCO is deferred but the account remains standard, additional specific provisions will be required:

• 0.375% per quarter for infrastructure loans
• 0.5625% per quarter for non-infrastructure projects, including CRE and residential real estate

The regulator has also made it mandatory for banks to initiate a resolution plan if any stress indicators arise during the construction stage. Any credit events must be promptly reported to the Central Repository of Information on Large Credits (CRILC) on both weekly and main reporting channels.

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Minimum Land Acquisition Norms for Loan Disbursement

The RBI also introduced mandatory land acquisition prerequisites prior to loan disbursement. Specifically:

• Infrastructure projects under the Public Private Partnership (PPP) model must have at least 50% land availability
• All other projects must demonstrate a minimum of 75% land availability

This pre-condition ensures greater implementation efficiency and reduces the likelihood of project delays attributable to land-related concerns.

Conclusion

The RBI’s finalised project finance guidelines come as a major boost for the Indian banking sector, lowering provisioning burdens and providing more flexibility for infrastructure and real estate lending. The implementation of the new 1–1.25% provisioning norms from October 1, 2025, allows for measured capital deployment without compromising on regulatory oversight. These calibrated changes are expected to catalyse larger bank participation in long-gestation projects, crucial for economic development in India.

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