Key insights:
The RBI (Project Finance) Directions, 2025, effective October 1, 2025, has fundamentally changed the rules under which banks and NBFCs can lend to real estate projects. The new framework freezes debt-equity ratios at financial closure, eliminates discretionary top-up loans during construction, expands the definition of a credit event (includes extension of project completion date) and mandates stage-linked disbursements certified by independent engineers. This will help strengthen guardrails against risk in project financing, promote more prudent lending practices and enhance the resilience of India’s financial sector. These guidelines will allow earlier recognition of challenges in project execution (such as delays, cost overruns and regulatory hurdles) and adoption of necessary steps to address the same, albeit with higher provisioning. As a result, traditional lenders may now have reduced flexibility in providing incremental credit or extend repayment tenure to projects under-construction.
