RBI (Commercial Banks – Credit Facilities) Fifth Amendment Directions, 2026

 The Reserve Bank of India (RBI), through its notification dated 15 July 2026, has issued the RBI (Commercial Banks – Credit Facilities) Fifth Amendment Directions, 2026, amending the RBI (Commercial Banks – Credit Facilities) Directions, 2025. The amendment has been issued under Sections 21 and 35A of the Banking Regulation Act, 1949 and comes into force with immediate effect.

1. Financing of Projects Capable of Being Operationalised as Multiple Independent Units

The amendment inserts an Explanation to paragraph 78 of the principal Directions. Where a project can be operationalised as multiple independent and viable units, a bank may, at its discretion, finance these independent units as separate projects, each having its own financial closure.

However, an important safeguard has been prescribed: each individual unit must be appraised ex-ante for standalone viability.

2. Implications for Project Finance

This amendment provides greater flexibility to banks in structuring and financing large projects that can be divided into independently viable components.

The provision could be particularly relevant where a project consists of several discrete units that can be commissioned and operated independently. Instead of necessarily treating the entire project as a single financing proposition, banks now have the discretion to consider individual viable units as separate projects, subject to separate financial closure and prior assessment of their standalone viability.

From a credit appraisal perspective, the amendment potentially enables:

• Phased financing of large projects;
• More focused assessment of individual project units;
• Financing structures aligned with the actual commissioning schedule;
• Potentially more efficient deployment of bank credit; and
• Greater flexibility in dealing with projects involving multiple independently viable components.

However, the requirement for ex-ante appraisal of standalone viability is significant. The amendment should not be interpreted as permitting banks to arbitrarily divide an otherwise integrated project merely to facilitate financing. The individual units must independently demonstrate viability at the appraisal stage.

3. Electricity Generation Projects – Transmission and Evacuation Infrastructure

A second amendment has been made to paragraph 80. For electricity generation projects where the project scope includes both generation and transmission (evacuation infrastructure), the right-of-way requirement for the transmission component may be determined in accordance with sub-paragraph (3) of the relevant provision.

This clarification appears aimed at addressing the specific characteristics of power generation projects where transmission infrastructure is an integral part of the overall project scope. It provides greater clarity regarding the determination of right-of-way requirements for the transmission or evacuation component.

4. Key Regulatory Impact

The amendment is primarily a regulatory clarification and facilitation measure for project finance by commercial banks. Its principal significance lies in providing banks with greater discretion in structuring credit facilities for projects that can be broken down into multiple independently viable units.

At the same time, RBI has retained a clear prudential safeguard by requiring standalone viability to be assessed before financing each unit. This ensures that the flexibility introduced does not dilute the quality of credit appraisal.

The clarification relating to electricity generation projects should also assist banks in dealing with financing structures involving both generation capacity and associated transmission infrastructure.

5. Action Points for Banks

Banks should consider the following actions:

1. Review existing project finance policies in light of the amended paragraph 78.
2. Establish clear internal criteria for determining when a project can be treated as comprising multiple independent viable units.
3. Ensure that standalone viability appraisal is undertaken ex-ante for every unit proposed to be financed separately.
4. Review documentation and financial closure processes where separate project financing is adopted.
5. Update credit appraisal and project finance manuals, wherever necessary.
6. Review financing frameworks for electricity generation projects involving transmission/evacuation infrastructure to ensure compliance with the amended paragraph 80.
7. Ensure that relevant credit, legal and project finance teams are made aware that the amendments are effective immediately.

Overall Assessment

The RBI amendment is a targeted measure aimed at providing greater flexibility in project financing without compromising prudential credit assessment. The ability to finance independently viable units as separate projects may facilitate more efficient financing of complex, multi-unit projects and potentially support phased project development.

For banks, however, the key compliance consideration is the requirement that each unit must be independently assessed for standalone viability before financing. The amendment therefore provides flexibility in financing structures, but does not relax the fundamental requirement of sound and independent credit appraisal.

The clarification concerning transmission/evacuation infrastructure in electricity generation projects is also likely to provide greater certainty in the appraisal and financing of power projects with integrated generation and transmission components. Overall, the amendment should be viewed as a facilitative change that enhances flexibility in project finance while preserving the underlying prudential discipline.