Power Finance Corporation, IREDA, HUDCO, PNB, and SBI rally up to 5% as RBI eases norms for project finance loans

Among individual names, shares of Power Finance Corporation (PFC) rallied as much as 5.4% to ₹411.45 apiece on the NSE. REC Ltd shares were trading 4% higher at ₹398.80 apiece on the NSE. Indian Renewable Energy Development Agency (IREDA) shares were trading over 3% higher at ₹163.60 apiece on the NSE.

Among PSU banks, PNB and the Central Bank of India were trading over 2% higher. The NIFTY PSU BANK index was trading 1% higher at 6,801.85 levels. All the 12 constituents were trading in the green.

SBI was trading 0.76% higher at ₹791.10.

The RBI on Thursday said it would require lenders to set aside 1% of the value of loans for under-construction infrastructure projects to cover potential losses, easing its earlier draft proposal that envisaged provisioning rising up to 5%, following an appeal by lenders.

The requirement will come into effect on October 1.

Long delays in implementing projects and optimistic revenue projections have led to large loan defaults in India and made lenders wary of the infrastructure sector.

The Reserve Bank of India (RBI) proposed in May last year that lenders should set aside 5% of the loan value for an infrastructure project being built to cover risks. However, lenders said that could dampen a recovery in project finance.

Since January, the central bank has partially reversed tighter rules for bank loans to small borrowers and non-bank lenders, eased rules for small-ticket gold loans, and begun unwinding curbs on non-bank financial companies and banks.

Under the new rules, lenders will also have to set aside 1.25% of the value of loans for under-construction commercial real estate projects.

What experts say

A M Karthik, Senior Vice President & Co-Group Head, Financial Sector Ratings, ICRA, said that the final guidelines on project finance come as a relief to the lenders, as for operational projects the extant requirement continues at 0.4%, which is lower than 1%/2.5% indicated in the earlier draft.

For under-construction projects, finance provisions are kept at 1% vis-à-vis the 5% suggested in the draft. This is, however, higher than 0.4% applicable at present for banks.

"Limited impact is expected on NBFCs as sufficient provisions are provided as per the expected credit loss assessment, and provisioning at present is closer to the requirement as per the guidelines. Also, the provisions are applicable prospectively, from Oct 2025, and thus the overall impact for lenders shall be limited," Karthik added.

Bernstein

The global asset management firm noted that the cut in the standard asset provision to 1% is a major relief for lenders.

It added that the relaxed norms, along with rate cuts and liquidity, will lead to the lending boost ahead.

Bernstein added that the revised guidelines lift sentiment for infra lending across sectors. Specialised NBFCs such as REC and PFC are among key gainers; PSU banks are also poised to benefit from lower capital strain.