India's new infrastructure lending rules to support loan growth, Moody's says

India's final rules easing provisions for loans to under-construction infrastructure projects are likely to revive credit growth in the sector, Moody's Ratings said on Monday.

The Reserve Bank of India earlier this month cut the provisioning requirement to 1% from a proposed 5%, a move expected to boost banks' willingness to fund infrastructure developments, Moody's said.

"We expect the guidelines' finalization will reduce uncertainty in project financing and support medium-term growth," Moody's said.

Infrastructure credit shrank 0.8% between April 2024 and April 2025 after the Reserve Bank of India proposed tighter lending norms last May, Moody's said, adding that lending by non-bank infrastructure financiers also lagged, growing at an annualised 6.9% between March and September 2024, versus 13.2% for the broader NBFC sector.

Prolonged project delays and overly optimistic revenue forecasts have triggered major loan defaults in India, leaving lenders cautious on infrastructure lending. The new rules take effect from Oct. 1.

The ratings agency said state-owned banks and non-bank lenders, most exposed to the infrastructure sector, would see a "slight negative impact" on profitability for loans that are not disbursed by October 1, although that would likely be a "one-off effect."

Additional steps such as extended deadlines for project completion and commercial operations will help support asset quality in the sector, Moody's said.