RBI Permits Unit wise Financing of Projects: Implications for Project Structuring and Documentation

On July 15, 2026, the Reserve Bank of India issued the Reserve Bank of India (Commercial Banks – Credit Facilities) Fifth Amendment Directions, 2026 (“Fifth Amendment Directions”), amending the Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025 (“Credit Facilities Directions”). The Fifth Amendment Directions came into force with immediate effect.

The amendment introduces an important flexibility in the project finance framework under Chapter VII of the Credit Facilities Directions. Where a project can be operationalised as multiple independent viable units, a bank may, at its discretion, finance each such unit as a separate project with its own financial closure, provided that the unit is appraised in advance for standalone viability.

Moving away from an all or nothing approach

Paragraph 78 of the Credit Facilities Directions requires banks to ensure that all applicable approvals and clearances necessary for implementing or constructing a project are obtained before financial closure. Further, paragraph 80 requires sufficient land or right of way to be available before disbursement. The minimum requirement is 50% for infrastructure projects under the public-private partnership model and 75% for all other projects, including non PPP infrastructure, non-infrastructure, commercial real estate and commercial real estate residential housing projects.

Where a development was proposed and financed as a single project, these requirements would ordinarily be assessed with reference to that project as a whole. As a result, a component that was otherwise ready for construction could be delayed because land, approvals or financing arrangements for another component were still pending.

The amendment now permits a bank to recognise commercially and operationally independent components as separate projects. Each unit may, therefore, have its own project cost, capital structure, financial closure, disbursement schedule and date of commencement of commercial operations.

Consider a hybrid renewable energy project comprising separate solar and wind generation facilities. If the entire development is financed as one non-PPP project, the 75% land availability requirement would ordinarily be assessed for the combined project before disbursement.

Under the amended framework, the solar facility may be financed as a separate project once the borrower has acquired the requisite land for that facility, obtained the approvals applicable to it and achieved financial closure for the solar unit. Financing for the wind facility can follow at a later stage when that unit independently satisfies the applicable conditions.

This avoids holding up a finance ready component merely because another component of the larger development is not yet ready. It may also allow the first unit to commence operations and generate revenues while the remaining units are still being developed.

The Fifth Amendment Directions separately clarify that where an electricity generation project includes both generation and transmission or evacuation infrastructure, the right of way requirement for the transmission component may be determined by the bank in accordance with the treatment applicable to transmission line projects.

Structures that may benefit

The amendment may also be relevant for large renewable energy parks comprising multiple generation blocks. Separate blocks may be financed at different stages where each block has identifiable generation capacity, dedicated or contractually available evacuation infrastructure and an independent revenue stream. This could be particularly useful where land acquisition, grid connectivity or commissioning timelines differ across blocks.

In the roads sector, a large highway or expressway project divided into separately operable packages may potentially be financed on a package wise basis, provided each package is capable of being operated and assessed as an independent viable unit. However, this would require careful consideration of whether the relevant package has an independent concession framework, tolling or annuity entitlement and whether its completion and revenues are materially dependent on adjoining stretches.

A similar approach may be considered for port development and expansion projects. For instance, separate terminals, berths or cargo handling facilities forming part of a larger port may be financed as independent projects, provided each such facility has identifiable project costs, construction milestones, operating arrangements and revenue streams, and is capable of commencing and sustaining commercial operations independently of the remaining port development.

Implications for financing documentation

Unit wise financing will require the project documents and financing arrangements to reflect the separation in substance.

The scope and boundaries of each unit should be clearly identified, together with its project cost, sources of funding, approvals, land requirements, construction schedule and commercial operations date. Conditions precedent and disbursement conditions should be tested separately for each financed unit rather than by reference to the overall development.

The cash flows of each unit should also be identifiable. Depending on the project, this may require separate collection or escrow arrangements, unit wise cash flow waterfalls and restrictions on the use of revenues generated by one unit for funding another.

Security arrangements may need to distinguish between assets exclusively attributable to a particular unit and assets shared across the development. Where the same borrower owns all the units, lenders will also need to consider whether project wide security, cross collateralisation or cross default provisions are consistent with treating each unit as an independently viable project.