RBI to Announce Final Project Loan Guidelines in Coming Months

Final guidelines for project loans are expected to be unveiled within the next two to three months. The RBI had, in May, released the draft project loan guidelines which proposed that banks set aside 5% of their total exposure to a project while construction is underway. This proposal has sparked concern among banks about potential impacts on profitability, prompting calls for a reassessment of the guidelines. The central bank has received up to 60 responses on the draft and is currently reviewing those suggestions.

Lenders subject to the draft circular fear the proposed provisioning rules will hurt their profitability, as loan provisions are recorded as expenses. They may pass these costs onto infrastructure projects, increasing overall expenses, particularly in low-profit sectors like renewable energy. Additionally, excessive provisions could discourage lenders from financing such projects, potentially depriving them of essential funding.