In May 2024, the RBI consulted on the draft guidelines on ‘Prudential Framework for Income Recognition, Asset Classification and Provisioning pertaining to Advances – Projects Under Implementation’.
After receiving feedback from around 70 entities including banks, NBFCs, industry associations, and others, the directions adopt a principle-based regime for resolution of stress in project finance exposures, harmonised across regulated entities (REs).
The directions also rationalise standard asset provisioning requirement to 1% for projects under construction, which shall gradually increase for each quarter of date of commencement of commercial operations (DCCO) deferment.
The draft guidelines had recommended that banks will need to adhere to the 5% provisioning norm for all project finance, irrespective of the sector-specific default risk.
Stakeholders, however, had expressed reservations against the 5% provisioning norm.
