In a significant policy shift aimed at reviving credit flow to India’s infrastructure sector, the Reserve Bank of India (RBI) has announced the finalised guidelines on provisioning norms for under-construction projects. The decision, welcomed by Moody’s Ratings, is expected to reignite infrastructure lending and bolster long-term investments across core sectors.

According to the updated guidelines, which will take effect from October 1, 2025, banks and lenders will now be required to provision only 1% of the loan amount during the construction phase of infrastructure projects. This is a substantial reduction from the 5% provisioning requirement suggested in the 2023 draft policy, marking a more accommodative regulatory approach to support capital-intensive development.

Moody’s: Credit Revival on the Horizon

Moody’s Ratings, the global credit rating agency, stated that the new provisioning framework will lower credit uncertainty and revive the funding appetite for infrastructure development. Over the past year, the sector has faced constrained credit growth, primarily due to regulatory tightening and elevated risk provisioning norms.

Between April 2024 and April 2025, credit to the infrastructure sector shrank by 0.8%, signaling lenders’ hesitancy toward long-gestation and high-risk projects. The new norms are projected to reverse this contraction, especially in areas such as transportation, renewable energy, and urban development.

Breakdown of New Provisioning Norms

The RBI’s updated framework differentiates between project categories, offering risk-based provisioning that reflects operational realities:

• Under-Construction Infrastructure Projects:
  1% provisioning, sharply reduced from the previously proposed 5%

• Commercial Real Estate (CRE):
  1.25% provisioning, maintaining moderate caution

• CRE – Residential Housing (CRE-RH):
  1% provisioning, aligned with broader infra standards

• Post-Operational Projects:

  • 0.4% provisioning for most operational infrastructure projects

  • 0.75% for CRE-RH

  • 1% for CRE

This phased and category-specific approach not only lowers capital costs for lenders but also incentivises timely project execution, as lower provisioning during operational stages reduces long-term funding burdens.

Additional Prudential Safeguards

To balance the leniency in provisioning, the RBI has built in safeguards to mitigate risks and ensure disciplined credit deployment. Key conditions under the new policy include:

• Minimum exposure criteria for each lender, promoting accountability and due diligence

• Proof of land acquisition as a precondition for fund disbursal, ensuring project readiness

• Time-bound deadline extensions:

  • 3 years for infrastructure projects

  • 2 years for all other project types

These measures are expected to improve project appraisal processes, reduce the occurrence of stalled projects, and enhance overall asset quality in the lending ecosystem.

Impact on NBFCs and State-Owned Banks

While the overall impact is seen as positive, Moody’s cautions that some state-owned banks and infrastructure-focused NBFCs may face marginal one-time profitability impacts on existing exposures taken before October 1, 2025. This is because such legacy loans will still be governed under previous, more stringent provisioning requirements.

Nevertheless, Moody’s asserts that the impact will be limited and temporary, with long-term gains from higher credit activity likely to offset short-term profitability dips.

Context: Credit Contraction and Slower Disbursements

The need for regulatory easing stems from the recent sluggishness in infrastructure credit. Infrastructure NBFCs recorded a disbursement growth rate of only 6.9% annualised between March and September 2024, compared to 13.2% growth in the broader NBFC sector during the same period. This disparity reflects policy-induced caution and limited enthusiasm from institutional lenders.

By reducing the cost of lending through lower capital provisioning, the new guidelines aim to level the playing field and inject fresh liquidity into infrastructure sectors that are critical for economic expansion.

Strategic Sectoral Benefits

The infrastructure sector, which includes roads, bridges, ports, airports, railways, water infrastructure, and power, often requires long-term financing that banks and NBFCs are traditionally reluctant to extend due to provisioning burdens and risks related to land acquisition, policy delays, and execution issues.

With the revised provisioning norms, infrastructure projects—especially under-construction ones—will find it easier to attract funding. The banking sector is now better positioned to provide project finance, take-out financing, and even support Public Private Partnerships (PPPs).

Boosting Investor Sentiment and Project Viability

The timing of this regulatory relaxation aligns with the Indian government’s ongoing push for infrastructure investments through programs like PM Gati Shakti, National Infrastructure Pipeline (NIP), and Smart Cities Mission. By reducing provisioning to 1%, banks are expected to release more capital for lending, thus enhancing project viability and investor confidence.

Moreover, improved lending norms could attract private equity and sovereign wealth funds, which often partner with banks and NBFCs to co-invest in infrastructure assets. The result is a stronger financing ecosystem that supports both greenfield and brownfield investments.

Forward Outlook: Infrastructure Lending Revival

As per Moody’s assessment, the new provisioning structure creates a clear, stable, and growth-oriented policy environment. The rating agency expects:

• A rebound in credit flows to infrastructure by mid-2026

• Gradual reduction in loan pricing due to lower capital requirements

• Enhanced participation from private and foreign banks in project finance

• Positive credit ratings outlook for banks with higher exposure to infrastructure

The move also sets a benchmark for balancing financial stability with growth, reinforcing RBI’s reputation as a prudent yet progressive regulator.

Conclusion

The Reserve Bank of India’s final guidelines, reducing provisioning norms for infrastructure and real estate lending, mark a turning point for infrastructure credit in India. With the 1% provisioning requirement for under-construction infra loans, the central bank has lowered barriers to funding while simultaneously building in safeguards through exposure limits, land acquisition proof, and project timelines.

As Moody’s projects a revival in infrastructure credit, stakeholders across the banking, NBFC, and real estate ecosystem can expect a more favourable policy backdrop to support the nation’s ambitious infrastructure agenda.

This strategic shift will likely accelerate the pace of core sector development, improve urban and rural connectivity, and contribute significantly to India’s goal of becoming a US$ 5 trillion economy. The RBI’s decision not only supports immediate growth but also lays the groundwork for long-term infrastructure resilience and financing sustainability.

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