Moody's expects infra credit revival as RBI eases provisioning norms

The Reserve Bank of India, in its final guidelines, eased project loan rules and cut provisioning burden on banks to 1%, instead of the earlier proposed 5%

The Reserve Bank of India’s (RBI’s) final guidelines easing provisioning requirements for under-construction infrastructure projects are expected to revive credit growth in the sector, Moody’s Ratings said on Monday, as reported by Reuters.

 

RBI eases provisioning rules for infra loans

On June 19, the RBI released the final guidelines, which stated that lenders will need to set aside just 1 per cent of the loan amount as provisions during the construction phase for most projects, down from 5 per cent suggested in last year’s draft. For commercial real estate (CRE), the requirement is 1.25 per cent, and 1 per cent for CRE-Residential Housing (RH).

 

The new norms will come into effect from October 1, 2025.

 

Once a project becomes operational, provisioning drops to 0.4 per cent for most sectors, 0.75 per cent for CRE-RH, and 1 per cent for CRE, which either matches or improves on current norms, as earlier reported by Business Standard.

 

The RBI has also set minimum exposure limits for lenders and required proof of land availability before releasing funds. It has capped project deadline extensions at three years for infrastructure and two years for other projects.

 

Guidelines to ease uncertainty, revive funding appetite

The revised rules are intended to improve banks’ appetite for financing infrastructure projects, Moody's said.

 

“We expect the guidelines’ finalisation will reduce uncertainty in project financing and support medium-term growth,” Moody’s said.

 

The changes come after a period of subdued activity in infrastructure lending. According to Moody’s, credit to the sector contracted 0.8 per cent between April 2024 and April 2025, following the RBI’s proposal in May last year to tighten lending norms.

 

Non-bank financial companies (NBFCs) focused on infrastructure lending also saw weaker growth. Between March and September 2024, loans from these entities grew at an annualised rate of 6.9 per cent, compared with 13.2 per cent for the broader NBFC sector.

 

Moody’s also noted that while the updated norms would support infrastructure credit over the medium term, they may marginally impact the profitability of state-owned banks and NBFCs with pre-October 2025 loan sanctions. However, the ratings agency expects the effect to be limited and one-time in nature.

 

Additional measures, such as extended deadlines for project completion and commercial operations, are also likely to help maintain asset quality, it added.