Project Finance Lending: Why Are Indian Banks Moving Toward Common Standards?

Indian banks are working toward a common approach to project finance lending as lenders try to reduce regulatory arbitrage and operational differences across consortiums. The development is important because large infrastructure and industrial projects often involve several lenders, and different internal practices can create inconsistent risk and classification outcomes.

What is changing in project finance lending?

Banks are discussing common parameters for deciding when a loan should be treated as project finance. The parameters under discussion could include project capital outlay, the amount funded and the project's gestation period.

This is an industry alignment effort, not a new RBI rule announced on September 21. State-run and private banks are expected to work toward common parameters that can then be reflected in individual bank-board policies.

Why do banks want common standards?

Project finance frequently involves consortium lending. If lenders classify similar exposures differently, borrowers can face different requirements and lenders can receive divergent audit observations.

A common framework could reduce regulatory arbitrage, improve documentation consistency and strengthen risk controls across large infrastructure loans.

What do current RBI project-finance rules require?

The RBI framework requires lenders to link loan disbursement to the project's stage of completion, equity infusion and other agreed sources of finance, along with applicable clearances. It covers both greenfield and brownfield projects.

The final project-finance framework that took effect in October 2025 rationalised standard-asset provisioning for projects under construction to 1%, while the requirement for under-construction commercial real-estate exposures was 1.25%. The current banking initiative is mainly about aligning implementation parameters across lenders.

Why does project finance lending matter for the economy?

Infrastructure investment depends heavily on long-term credit. More consistent project-finance standards could make consortium funding more predictable and improve risk assessment for roads, transport, power, industrial and other capital projects.

At the same time, more standardised screening could make weak projects harder to finance. That may improve credit quality, but promoters may need to demonstrate stronger project economics before financial closure.

What should banks and borrowers watch next?

The next steps are whether banks agree on common parameters, how individual boards incorporate them into internal policies, and whether the RBI issues any further clarification or supervisory guidance.

Borrowers should continue to follow the sanction terms and lender-specific policies currently applicable to their projects until any new common framework is formally adopted.

Important Links

Economic Times: https://m.economictimes.com/industry/banking/finance/banking/banks-unite-to-establish-unified-project-finance-lending-standards-to-minimize-regulatory-gaps/articleshow/134374140.cms

Important Instructions

This development is a reported industry alignment effort. It should not be treated as a new RBI mandate unless the RBI or another competent authority formally issues one.

FAQs

Is this a new RBI rule? No. The current development concerns banks working toward common internal standards.

What is project finance? It is lending in which project cash flows and revenues form a primary source of repayment and the project structure provides the core security framework.

When will a common framework take effect? No final industry-wide implementation date has been announced in the development reviewed for this article.

Last Updated

September 21, 2026