Indian lenders are crafting a shared framework for project finance to fix inconsistencies in how consortiums assess large infrastructure loans. By standardizing metrics like project duration and funding levels, banks hope to reduce audit disputes and uneven risk classification. Investors may monitor whether this shift leads to stricter underwriting discipline across the banking sector.
Indian banks are moving to establish a common set of rules for project finance, aiming to iron out differences in how lenders in a consortium evaluate and classify large-scale projects. When multiple banks join forces to fund a major infrastructure or commercial real estate project, they currently follow their own internal criteria to assess the project’s health. This can lead to a situation where one bank classifies the loan as a healthy asset while another flags it as a higher-risk exposure, creating confusion during audits and regulatory reporting.
To bridge these gaps, banks are discussing shared parameters such as total capital outlay, the specific amount of funding provided, and the project’s gestation period—the time taken before the project starts generating income. The goal is not to override the Reserve Bank of India (RBI) guidelines, but to create a uniform approach within the banking industry that reduces the scope for such discrepancies.
Currently, the RBI provides the framework, but leaves the final decision on how to classify and manage these exposures to individual bank boards. While this flexibility allows banks to tailor their lending strategy, it has resulted in different standards across the industry. By adopting a voluntary, industry-level alignment, banks hope to make consortium lending easier to manage and less prone to disagreements regarding provisioning, which is the money banks set aside for potential losses.
From an investor's perspective, this shift toward standardization is significant because project finance involves large sums of money often tied to long-term infrastructure assets. Since October 2025, RBI rules have mandated a 1% standard asset provisioning for general projects under construction and 1.25% for commercial real estate. If banks align their internal definitions to a common standard, it could reduce the variability in how these assets are reported on balance sheets.
However, the move may also lead to stricter underwriting. If banks agree on a common, conservative framework, projects that might have previously secured funding due to lenient internal criteria could face tighter scrutiny. For investors, the key monitorable will be how this standardization affects the pace of new project approvals and whether it leads to more consistent asset quality across the banking sector. As this initiative progresses, banks will likely focus on ensuring their internal policies comply with these new shared metrics while maintaining the ability to finance viable, long-term infrastructure growth.