The infrastructure financing sector in India has evolved significantly, driven by financial and policy support. Greater policy clarity has attracted strong interest from various lender classes and stakeholders have become more mature. Additionally, financing instruments such as infrastructure investment trusts (InvITs) have gained traction. At the recent Indian Infrastructure Forum 2025, organised by Indian Infrastructure, industry experts shared their perspectives on the changing landscape of infrastructure financing, measures to attract long-term capital and the future potential of emerging sources. Edited excerpts…
Balaji
Several trends are reshaping the infrastructure financing space. First, stressed assets are experiencing a recovery as debt levels are being brought to more manageable levels, restoring the economic viability of projects. Second, intense competition, especially in the renewable energy sector, has driven down tariffs, creating pressure on borrowing costs. Third, developers are increasingly adopting asset-light models, where they construct projects and later divest them via InvITs.
Another notable trend is the growing momentum of blended finance. This approach will be crucial for supporting the development of less viable or riskier projects. Consequently, viability gap funding (VGF) is anticipated to remain a key area of focus to ensure that such projects move forward.
Earlier, overseas funding primarily came from multilateral banks. However, there is now a large influx of private capital in the market. Much of this is channelled through instruments such as green finance and social finance. Additionally, as more projects become operational and the regulatory uncertainty reduces, InvITs are expected to play a critical role in financing these operational assets. Several pension funds are also increasingly investing in this asset class to secure steady cash flows over a 20-25 year period.
“Regulatory and execution risks have reduced considerably. This has made infrastructure financing easier.” R. Balaji
Interestingly, non-banking financing companies (NBFCs) that previously focused on funding a particular infrastructure sector are now diversifying across sectors, broadening their portfolio exposure.
The majority of infrastructure funding is currently being deployed towards the creation of new projects. However, going forward, a significant amount will be required towards the upgradation of existing assets, especially in urban infrastructure. Recognising this need, the government is encouraging local bodies to access the bond market, as budgetary support alone is inadequate to bridge the funding gap. Nonetheless, certain challenges persist. For instance, low-cost recovery in water utilities – averaging just 30 per cent, except in a few municipal corporations – continues to make the sector less attractive to retail investors.
Overall, regulatory and execution risks have reduced considerably. This has made infrastructure financing easier.
Anurag Dwivedi
A key emerging trend for operational projects, specifically within the renewable energy sector, is the adoption of the restricted group (RG) structure or cross-collateral arrangements. Under this approach, around 10-12 operational special purpose vehicles (SPVs) with inconsistent cash flows are funded as a group. This method helps hedge cash flow risk, as SPVs with surplus cash flows support those experiencing shortfalls. Banks, and particularly infrastructure debt funds like the National Infrastructure Investment Fund, with a mandate to support operational projects, have shown strong interest in funding such structures. Major NBFCs are also increasingly funding holdco-level entities for on-lending to group-level SPVs.
There has been growing traction from private equity players in India, particularly in operational projects. Several Indian renewable platforms with sizeable portfolios of over 1-2 GW have emerged, for example, Greenko and Ayana Renewable Power. Players such as Alpha Alternatives, Neo Asset Management, and Investec India have shown strong interest and have launched infrastructure-specific private credit funds. While the typical size of these funds currently ranges between Rs 10 billion and Rs 15 billion, they have the appetite to scale up and can launch additional funds as soon as the existing ones are fully utilised.
Furthermore, two new sectors have emerged as asset classes in infrastructure funding that were not previously present – electric vehicles (EVs) for public transportation and smart metering. The government aims to deploy 50,000 EV buses by 2030, relying heavily on urban local bodies (ULBs) for implementation. However, most ULBs, barring a few, often lack the financial strength to support infrastructure projects independently. To address this, the government has introduced automated VGF mechanisms, ensuring timely developer payments. This has significantly improved lender confidence.
On the banking side, asset-liability mismatches continue to limit commercial banks’ risk appetite. Moreover, the National Bank for Financing Infrastructure and Development (NaBFID), set up to bridge the construction finance gap, now funds both greenfield and operational projects, competing with banks due to its lower cost of capital and government support, creating tension in the ecosystem. Hence, banks now focus on providing bank guarantees at the project award stage and offering working capital and milestone-based loans.
Broadly speaking, greater policy clarity has attracted strong interest from various lender classes. Stakeholders have become more mature. Risk assessment by commercial banks and NBFCs has grown robust, with improved risk mitigation. Moreover, various financing avenues have emerged, further deepening the infrastructure financing market.
“Greater policy clarity has attracted strong interest from various lender classes.” Anurag Dwivedi
Jyoti Prakash Gadia
In recent years, the recovery of stressed infrastructure assets has been strong, with banks and institutions recovering most assets with minimal losses. The few unresolved cases are largely due to legal issues rather than being promoter-driven.
The sector has matured, with wider funding availability for projects, enabling a more phased approach to project funding. Unlike earlier, when a single institution financed the entire project life cycle, funding is now more diversified. Different institutions finance different components across various phases of the project life cycle, over four to five years, followed by refinancing. This has allowed funding to be aligned with each investor’s risk appetite and focus area.
Rising competition among private credit funds has enabled even small developers with only two to three projects to access funding. These funds finance projects as soon as they are awarded, even before commissioning begins. Once the project is completed, usually after three to four years, the fund proceeds to fully acquire it.
Banks are increasingly open to funding pre-construction build-operate-transfer (BOT) projects, provided two key conditions are met. First, the parent company must have a credit rating of “A” or above and provide a corporate guarantee. Second, there must be a substantial upfront equity investment. Meeting these two conditions provides some comfort to the lender, making the project eligible for funding.
However, some challenges continue to exist. Recently, the Reserve Bank of India (RBI) raised concerns over the growing sectoral concentration in the loan books of large lenders such as LIC Housing Finance (HFL), REC Limited and PFC Limited. This has prompted regulatory pushback, with LIC HFL being advised to consider restructuring or consider a merger with a bank. Accordingly, RBI has mandated that up to 25 per cent of REC’s and PFC’s portfolios be allocated to infrastructure sub-sectors. Concerns persist around the limited progress of the NaBFID in offering credit enhancement. Expanding these schemes, especially for pre-construction-phase projects, could encourage greater retail participation. Additionally, the Securities and Exchange Board of India’s (SEBI) recent reforms aim to boost retail investment in the bond market. These include launching an online bond platform and lowering the minimum investment requirement from Rs 100,000 to Rs 10,000.
Despite challenges, the financing of infrastructure projects has become easier. This is largely due to the presence of diverse market players who participate at different stages of the project life cycle. Additionally, the increased use and regulatory acceptance of call and put options have further enhanced refinancing certainty.
“The recovery of stressed infrastructure assets has been strong, with banks and institutions recovering most assets with minimal losses.” Jyoti Prakash Gadia
K.K. Mittal
Of late, investor appetite for the bond market has been increasing. The bonds issued for retail participation by the National Highways Authority of India were fully subscribed on the first day itself. Additionally, the National Bank for Agriculture and Rural Development has launched its maiden issuance of social bonds. Beyond these, several new and innovative structures are also emerging in the market, further expanding the scope of participation.
Now, more municipalities are coming forward to raise funds. However, a major challenge they continue to face is obtaining a credit rating due to the stringent prerequisites for bond issuance.
Notably, another emerging trend is the participation of smaller borrowers. Earlier dominated by large-ticket projects, the market now includes smaller entities seeking Rs 2 billion-Rs 3 billion funding, often preferring faster and more flexible options than traditional banks.
Indian pension funds (PFs) and family offices are also increasingly becoming active, contributing alongside traditional investors. Moreover, PFs have shown interest in instruments such as bonds, InvITs and real estate investment trusts. However, their investment is subject to stricter credit rating norms, as they typically invest only in instruments rated “AA” or higher.
In terms of retail participation, investors have continued to show interest in the infrastructure sector, as it offers fixed income returns, unlike the volatility present in equity markets. Lastly, compared to earlier, accessing financing is now considerably easier.
Alok Sinha
InvITs have significantly gained traction over time. Moreover, the issue of asset-liability mismatch, a key constraint that earlier plagued the sector, is being overcome by various institutions funding different stages of a project.
In the urban infrastructure space, multilateral institutions are increasingly focusing on ring-fencing development charges, including land value taxes, to ensure dedicated funding for new urban mobility solutions, including mass transit systems.
Multilateral institutions have been making significant investments in projects with long gestation periods, such as the regional rapid transit system (RRTS), high speed rail and other urban mobility initiatives. The scale of investment has grown significantly compared to the past, driven by the government’s increased propensity to invest in these large projects. Notable examples include World Bank funding for the Haryana metro and the Asian Development Bank’s support for the Delhi-Meerut RRTS corridor.
However, the municipal bond market remains nascent, accounting for only a small share of the country’s overall bond issuance, with the issue size typically ranging between Rs 5 billion and Rs 10 billion. Although efforts have been made since the launch of the Smart Cities Mission and subsequent reform measures, a key challenge for most municipal authorities remains their inability to meet the prerequisites for raising funds through these bonds. Meanwhile, Uttar Pradesh has made visible progress, with several municipal bodies tapping the bond market. Currently, Varanasi is in the process of issuing municipal bonds, indicating some level of market maturity.
The overall funding landscape has improved over the past couple of years. This is largely due to the presence of diverse market players who participate at different stages of the project life cycle, based on their respective risk appetites.
“The issue of asset-liability mismatch, a key constraint that earlier used to plague the sector, is being overcome by various institutions funding different stages of a project.” Alok Sinha
