Banks are developing a common framework for project finance lending to address regulatory arbitrage and operational misalignment among consortium lenders. According to reports from The Economic Times, discussions will involve both state-run and private banks to establish common parameters covering aspects such as capital outlay, amount funded and gestation period. As reported by bank executives, there is a need for standardization to prevent conflicting loan classifications among consortium lenders.
The common framework is expected to bring enhanced risk mitigation and avoid issues such as divergent audit observations, as reported by bank executives. According to The Economic Times, a common framework will ensure that not all loans are classified under project finance, which can lead to conflicting loan classifications among consortium lenders. The initiative aims to establish clear parameters that all lenders can follow consistently.
Under RBI guidelines, lenders must ensure loan disbursal is proportionate to the stages of completion of the project, as well as progress in equity infusion and other sources of finance agreed as part of financial closure. As reported by The Economic Times, in the final guidelines effective October 2025, RBI rationalised the standard asset provisioning requirement to 1% for projects under construction and 1.25% for under-construction commercial real estate exposures. The guidelines mandate that all lenders should have a common agreement with the debtor, but allow different loan terms for each lender provided these are agreed upon by the debtor and all lenders for the project.
Finance Ministers from Maharashtra and Assam are urging banks to adopt cash flow-based lending to fund next-generation sectors including manufacturing, data centres, and green energy. Speaking at the SBI Banking and Economics Conclave 2026 in Mumbai, Ashish Jaiswal, Minister of State for Finance, Maharashtra emphasized that banks must complement conventional collateral-based lending with cash flow-based and data-driven financing models. His Assam counterpart Jayanta Malla Baruah highlighted the need for alternate financing approaches for ancillary industries and start-ups, noting that while large corporate houses have access to bank funds, lenders should explore new ways to finance these sectors.
The Reserve Bank of India has left the decision on parameters to individual bank boards, allowing them to determine whether a loan can be underwritten as project finance. According to The Economic Times, it is necessary that the industry be aligned to reduce scope for regulatory arbitrage. The initiative aims to ensure final guidelines by all bank boards are aligned, addressing issues that have led to conflicting loan classifications among consortium lenders in the project finance sector. With states now actively promoting cash flow-based lending for emerging sectors, the framework development takes on renewed importance for ensuring consistent lending standards across the banking sector.
