Summary of this article
RBI clarifies which infrastructure loans qualify as high quality
Only operational projects with strong safeguards get regulatory recognition
Rules apply from April 2026 or earlier adoption
The Reserve Bank of India (RBI) has issued a revision of its concentration risk management framework for non-banking financial companies (NBFCs). The changes, announced on January 1, 2026, have put down the specifics under which some infrastructure loans may be considered high quality infrastructure projects. The importance of this classification is that it will define the extent to which an NBFC can expose itself to a single borrower or group without violating regulatory limits.
The amendments have changed the current Non-Banking Financial Companies Concentration Risk Management Directions, 2025. The modified framework will be effective on the date on which an NBFC implements the corresponding capital adequacy amendments, or on April 1, 2026, whichever is earlier.
Concentration Risk: What It Means and Why It Matters
Concentration risk is the risk that occurs when a lender has a high exposure to a single borrower, group, sector or type of project. When such an exposure becomes stressed, it may disproportionately affect the balance sheet of the lender.
To deal with this risk, RBI has imposed thresholds on the amount of loan by NBFCs to a single borrower or a group. These are the limits related to the capital base of an NBFC. Regulatory recognition may be given to certain types of exposures, which are viewed as safer or more stable, in order to enable risk management to be done at these limits.
New Type Of Quality Infrastructure Projects
Within the amendment, RBI has come up with a certain provision, which permits certain infrastructure loans to be considered as lending to high quality infrastructure projects. This can only be limited to loans that match all the conditions that are stipulated.
Among the major requirements is the fact that the infrastructure project must have been inaugurated at least one year into commercial operations. The material loan covenants should not be breached during this time. This status will guarantee that the project is not at the construction stage, but has proven stable in its operations.
The exposure should also be standardised as in the books of the lender. This is to imply that the loan must not be experiencing any form of stress or default and must be serviced with time.
Government Linked Contracts And Revenue Visibility
The other critical requirement is associated with the source of revenue of the borrower. The revenue of the project should be based on the rights provided either on a concession or a contract by the Centre, the state government, a governmental organisation or a state or a regulatory authority or a statutory authority or statutory body.
These rights need to be preserved in the contractual framework throughout the period of the concession or the period of the contract provided the borrower fulfills its obligation. The aim behind this requirement is to avoid uncertainties with cash flows, particularly in road, port, power transmission as well as urban infrastructure.
Strong Lender Protection In Contracts
The RBI has also stipulated minimal protections which should be granted to lenders. They comprise an escrow or trust, and retention account system to ring fence the project cash flows.
Risk reduction measures should also be incorporated in the contract in case the project is terminated earlier than the agreed time. These safeguards are meant to restrict losses in case of disruptions in the project.
Adequacy And Borrower Restrictions Funding
The borrower should be able to maintain adequate financial arrangements, either internal or external to satisfy current and future working capital and funding requirements. Such an evaluation will be conducted by the lender according to the structure of the project and cash flow profile.
Moreover, the borrower must not be allowed to do anything that may jeopardise the interest of the lender. This involves restriction on further increasing debt or reducing project cash flows and assets without the lender/s approval.
