The Reserve Bank of India has revised the regulatory framework governing the financing of large projects that consist of multiple independent and commercially viable units. The amendment provides greater flexibility to Non-Banking Financial Companies while preserving the core principles of prudent project appraisal, financial closure and risk assessment.
Issued on July 15, 2026, the revised framework came into effect immediately. It allows NBFCs to finance an independently viable unit of a larger project as a separate project, subject to fulfilment of prescribed prudential conditions.
Background of the Amendment
Large infrastructure, industrial and energy projects are often developed through several interconnected units or phases. Under the earlier approach, lenders could face practical difficulties where one unit was ready for financing but other components of the larger project were still under development.
The revised framework recognises that certain units within a larger project may be capable of operating independently and generating their own revenue. Such units may now be considered separately for financing, provided their standalone financial and operational viability is clearly established.
This change is particularly relevant for complex projects where different units have separate construction schedules, revenue models, financing requirements or operational arrangements.
What Has Changed?
The key change is that an NBFC may evaluate and finance an independent unit of a larger project as a separate project.
However, the amendment does not permit an automatic division of every large project into smaller components. A unit can be treated separately only when it is genuinely independent, commercially viable and operationally sustainable on a standalone basis.
The NBFC must establish that the proposed unit can function without relying excessively on incomplete or unfinanced components of the larger project.
The assessment should therefore examine:
- Whether the unit can independently commence commercial operations
- Whether it has a clearly identifiable revenue stream
- Whether the unit has adequate infrastructure and operational support
- Whether its cash flows are sufficient to service the proposed debt
- Whether dependencies on other units create material implementation risks
Separate Financial Closure Is Mandatory
Each unit proposed to be financed as a separate project must have its own financial closure.
Financial closure means that the required sources of funds have been clearly identified and firm arrangements have been made to meet the complete cost of the unit. This may include promoter contribution, debt finance, internal accruals, grants or other committed sources.
An NBFC should not sanction finance merely because the larger project has achieved financial closure. The specific unit must independently demonstrate that adequate funding is available for its timely completion and commencement of operations.
Separate financial closure helps prevent situations where funds intended for one unit are diverted to support unfinished components elsewhere in the project.
Ex-Ante Viability Appraisal
Before extending finance, the NBFC must conduct an ex-ante viability appraisal of the individual unit.
The appraisal should be completed before the financing decision and must assess whether the unit is financially, commercially and operationally viable on its own.
The assessment should cover:
- Estimated project cost and funding structure
- Revenue projections and operating assumptions
- Debt-servicing capacity
- Construction and implementation timelines
- Market demand and commercial arrangements
- Technical feasibility and operating capacity
- Regulatory approvals and contractual dependencies
- Risks arising from links with other project components
The appraisal should clearly document why the unit qualifies for treatment as a separate project.
Independent Viability Is Essential
The revised framework offers flexibility, but it also places greater responsibility on the lender. An NBFC must not treat a component as independent merely to facilitate financing or avoid stricter appraisal of the complete project.
The unit must have sufficient standalone capacity to operate and generate cash flows. Where its operations depend substantially on the completion of another unit, the NBFC should carefully assess whether separate financing is genuinely appropriate.
Inter-unit dependencies, shared infrastructure, common utilities and cross-default risks must be properly identified and addressed.
Clarification for Electricity Projects
The amendment also clarifies the treatment of integrated electricity projects involving generation, transmission or evacuation infrastructure.
In such projects, right-of-way requirements for transmission or evacuation facilities may be reviewed under the relevant regulatory provisions. NBFCs should verify whether the necessary land access, permissions and infrastructure arrangements are sufficiently secured before treating a unit as independently viable.
This clarification is important because delays in transmission connectivity or right-of-way approvals may affect the ability of a generation unit to commence commercial operations and earn revenue.
Compliance Priorities for NBFCs
NBFCs should update their project-finance policies, appraisal formats and internal approval procedures to reflect the revised framework. Credit teams must record the basis on which a unit is treated as a separate project and confirm that financial closure and viability requirements have been independently satisfied.
The sanction note should clearly identify project dependencies, approval status, cash-flow assumptions and monitoring conditions. Post-disbursement monitoring should also be conducted at the unit level.
