RBI’s New Framework for “High-Quality” Infrastructure Lending by NBFCs

India’s infrastructure financing ecosystem has historically reflected a regulatory paradox, where infrastructure is indispensable to economic growth and public welfare, yet its long gestation cycles, revenue variability, and execution risks have compelled regulators to impose stringent prudential safeguards on lenders. Non-Banking Financial Companies (NBFCs), which play a critical role in bridging funding gaps in infrastructure, have often found themselves constrained by capital adequacy and concentration norms that do not fully differentiate between speculative exposure and stable, operational projects.

Recognising this structural imbalance, the Reserve Bank of India (RBI) has introduced a refined, risk-sensitive framework that recalibrates both exposure assessment and capital treatment for infrastructure lending by NBFCs. These amendments establish a cohesive regulatory framework that first delineates the parameters of a high-quality infrastructure project and subsequently aligns capital adequacy treatment with that classification.

Under the earlier framework, infrastructure lending by NBFCs was subject to uniform exposure and risk-weighting norms, with little distinction between early-stage projects and operational assets. As a result, mature projects with stable cash flows were treated on par with higher-risk exposures, leading to elevated capital lock-ins and discouraging NBFC participation in operational infrastructure projects where long-term and refinancing support is most needed.

Defining ‘High-Quality Infrastructure Projects’

By amending subparagraph 4(4) of the RBI NBFC Concentration Risk Management Directions, 2025 vide Notification bearing reference no. RBI/2025-26/169 DOR.CRE.REC.372/07-03-008/2025-26 dated January 1, 2026, RBI has now introduced a carefully calibrated classification for ‘high-quality infrastructure projects.’

RBI adopts a multi-dimensional risk lens, focusing on operational maturity, asset quality, revenue certainty, and lender protection. Infrastructure projects may now be regarded as ‘high-quality’ where, among other things:

1. It has completed at least one full year of operations after achieving commercial operation date, without material covenant breaches stipulated by the lenders;
2. The exposure continues to be classified as standard in the lender’s books;
3. Borrower’s revenues arise from concessions or contracts granted by Central Government, State Government, a public sector entity, regulatory or statutory bodies, with enforceable protection of such rights throughout the concession period or contract as long as borrower fulfils its obligations;
4. Lenders enjoy robust contractual safeguards such as escrow/trust and retention account mechanisms, pari-passu security over all moveable and immovable assets, and effective risk-mitigation provisions in case of early termination; and
5. The borrower is financially structured to meet both working capital and future funding needs without prejudicing lender interests.
6. The borrower is restricted from acting to the detriment of the lender.

This framework marks a clear regulatory shift from project typology to project behaviour and safeguards. Importantly, it embeds lender protection as a core determinant of asset quality, signaling RBI’s emphasis on contractual discipline and secure management of cash flow in infrastructure finance.

Translating Quality into Capital Relief:

Having established what qualifies as ‘high-quality infrastructure’ projects, the RBI’s second amendment delivers the tangible regulatory incentive. Through modifications to the NBFC Prudential Norms on Capital Adequacy Directions, 2025 vide notification bearing reference no. RBI/2025-26/168 DOR.CRE.REC.373/21-01-002/2025-26 dated January 1, 2026, RBI recalibrates risk weights applicable to loans extended to such projects.

The revised capital treatment introduces a repayment-linked framework that explicitly recognises the declining credit risk associated with operational infrastructure assets. Where a high-quality infrastructure project has repaid at least 2% of the sanctioned project debt, the corresponding NBFC exposure attracts a reduced 75% risk weight. As repayment performance strengthens and reaches at least 5% of the sanctioned project debt, the applicable risk weight is further lowered to 50%. This graduated structure departs from static risk assumptions and embeds repayment behaviour as a central determinant of capital allocation.

At the same time, the RBI has built in prudential safeguards. Should a project that once qualified as ‘high-quality’ later fail to meet the stipulated conditions, the exposure automatically reverts to higher, standard risk weights. Additionally, repayment thresholds are to be determined based on the entire sanctioned debt, including any previous loans sanctioned against the project assets or cash flows.

Both amendments come into effect from April 1, 2026, with flexibility for earlier adoption by NBFCs that choose to implement the framework in its entirety. Where existing exposures currently enjoy lower risk weights but would attract higher weights under the amended regime, NBFCs may continue with the extant treatment until the next review or March 31, 2027, whichever is earlier. This phased approach reflects regulatory sensitivity to capital planning cycles while ensuring eventual convergence with the revised prudential standards.