RBI-approved infrastructure lending overhaul to unlock stalled projects

Moody’s has endorsed the RBI’s new framework reducing provisioning norms for under-construction infrastructure loans from 5% to 1%, a shift expected to re-incentivize bank lending to stalled projects. The revision, set to kick in on October 1, allows longer timelines for loans and lowers the capital burden for lenders, especially state-run banks and NBFCs that have seen infrastructure lending dip.

This regulatory change aims to revive stalled highway, power, and industrial projects that hampered goal achievement in sectors fundamental to India’s $4 trillion economy. Though the change may impose a short-term hit on asset quality and profitability, the expected pickup in credit flow is anticipated to benefit medium-term growth. Market participants are awaiting RBI guidance on classification criteria to ensure transparent implementation.