Shares of power financiers such as Power Finance Corportation, REC, Indian Renewable Energy Development Agency, and Housing & Urban Development Corporation were buzzing in trade on June 20, surging up to 6%. The strong buying action in these counters comes on the heels of the Reserve Bank of India’s decision to ease project financing norms.
The RBI’s finalised framework significantly eases earlier proposed provisioning norms. For projects under construction, the Provision Coverage Ratio (PCR) has been set at 1% of total project cost, and at 1.25% for under-construction commercial real estate (CRE). During the operational phase, standard provisions are relaxed to 1% for CRE, 0.75% for CRE and residential housing, and 0.4% for other project exposures.
The new rules, effective from October, are less stringent than the draft norms, which had proposed a sharp rise in PCRs of up to 5% during construction and 2.5% during operations, tapering down to 1% based on performance milestones.
For NBFCs such as REC, PFC, and IREDA, the earlier draft norms had also required provisioning through impairment reserves rather than the profit and loss account, potentially impacting regulatory capital. In contrast, the final guidelines offer more favourable treatment, helping reduce pressure on their balance sheets.
Brokerage firm CLSA noted that while the final norms tighten disbursement conditions requiring all approvals and right of way (RoW) clearances before funds are released, the provisioning relief outweighs the constraints. CLSA highlighted existing sectoral bottlenecks such as delays in evacuation infrastructure or power purchase agreement (PPA) signings, which had earlier prompted PFC and REC to lower their FY25 growth guidance.
The brokerage maintained a high-conviction 'outperform' rating on both PFC and REC, projecting a 35% upside for PFC and 37% for REC. CLSA added that any resolution to current infrastructure bottlenecks could act as a fresh trigger for the stocks.
