Context:
The Reserve Bank of India (RBI) has released the final guidelines on Income Recognition, Asset Classification, and Provisioning (IRACP) norms specifically for project finance loans, applicable to both banks and NBFCs. These directions aim to align provisioning with the actual credit risk during a project’s lifecycle.
Key Highlights
Provisioning for Projects Under Construction:
- 1% standard asset provisioning
- 1.25% provisioning for Commercial Real Estate (CRE) projects under construction
- Staggered provisioning if the Date of Commencement of Commercial Operations (DCCO) is delayed – provisioning increases quarterly with delay
Provisioning After Project Becomes Operational:
- Standard CRE exposures: 1%
- CRE-RH (Residential housing under CRE): 0.75%
- Other operational projects: 0.40%
Objective of the Framework
- Ensure risk-based provisioning in sync with project lifecycle
- Introduce granularity and discipline in asset classification and provisioning
- Reduce systemic risk and encourage prudent project financing
Applicable Entities
- All Scheduled Commercial Banks
- All Non-Banking Financial Companies (NBFCs), including Infrastructure Finance Companies (IFCs)
