Infrastructure development in India is primarily financed by banks, non-banking financial companies (NBFCs) and budgetary support. Recognising its role in economic growth, financial institutions prioritise the infrastructure sector, displaying a strong willingness to sanction loans for asset creation. However, lenders still show a predisposition towards traditional sectors backed by favourable, established policies. At a recent India Infrastructure conference, key lenders in the industry discussed the current lending trends, evolving financing landscape, challenges faced and policy asks. Edited excerpts …
R.Balaji
PTC India Financial Services Limited (PFS) has emerged as a pioneer in financing renewable energy projects across segments such as solar and wind. A key differentiator for the organisation is its extensive data repository covering assets across their entire lifecycle—from the pre-appraisal stage through project commissioning and long-term operations spanning five to ten years.
Traditionally, infrastructure has been associated with large-scale undertakings such as thermal power plants or solar projects. Today, however, the definition of infrastructure extends far beyond power generation to include roads, wastewater management, solid waste processing, electric mobility infrastructure, hospitals, and a range of social and environmental assets. Within this broader framework, PFS is actively exploring what it terms “distributed infrastructure”—a category of smaller, decentralised projects that require focused and specialised financing solutions.
In many cases, the effort required to appraise a 50 MW or 100 MW renewable energy project is nearly equivalent to that for a 1,000 MW plant. Yet, smaller projects often fail to attract large institutional lenders due to lower ticket sizes and perceived inefficiencies. Supporting such projects presents a strategic opportunity to broaden participation and promote distributed asset creation across the country.
Another strategic focus area lies in emerging sectors where economies of scale do not necessarily translate into efficiency. Segments such as compressed biogas (CBG) offer significant potential, despite lingering scepticism rooted in past experiences with conventional biogas projects. Financial institutions had previously incurred losses in biogas projects due to market shifts—particularly the emphasis on grid-based rural electrification, which reduced demand. CBG addresses these concerns through fundamental differences: its purity exceeds 97 per cent (compared to 60-70 per cent for conventional biogas), making it comparable to natural gas. In addition, supportive policy measures—such as the mandatory 3 per cent blending of CBG in natural gas from June 2026—help create assured demand through long-term offtake arrangements.
Typical CBG projects involve capital expenditure ranging from Rs 1 million to Rs 1.50 billion, with offtake agreements often spanning 15-20 years or more. Post-commercialisation—typically achieved within 18 months—these projects frequently attract refinancing after one year of operations, as reduced operational risks enable more competitive yields of around 10.5-11 per cent, compared to sub-9 per cent returns in conventional renewable energy projects. Nevertheless, key operational risks require careful evaluation. Foremost among these is the consistent availability of raw materials, where stated supply must align with actual on-ground availability. Equally critical are the robustness and enforceability of purchase agreements, which underpin revenue certainty; while standardisation is evolving, strong contractual frameworks remain essential for lender confidence and long-term project viability.
While policy and execution capabilities have improved markedly, ensuring equitable credit access for all participants, especially smaller contractors, remains essential. Large players may receive financing from major banks, but the Tier I and II suppliers that support them often face funding constraints. Institutions like PFS can play a pivotal role in bridging this financing gap, enabling seamless execution across the supply chain and improving overall project delivery timelines.
Looking ahead, key policy measures to strengthen infrastructure financing include credit guarantee schemes and the establishment of a dedicated refinance facility. Beyond these, greater harmonisation of regulatory norms between banks and NBFCs would help ensure a level playing field, enhance efficiency and support sustained infrastructure development.
Anurag Dwivedi
Regulatory uncertainty remains one of the most significant hurdles in infrastructure financing today. This challenge is particularly acute in the renewable energy sector – the most commonly funded infrastructure segment – where persistent ambiguities surround key approvals such as those under Sections 64, 163 and 17 of relevant statutes. Lenders continue to grapple with unresolved issues related to land acquisition and right of way (RoW) clearances, which frequently delay or derail projects even after initial sanctions. These uncertainties have tangible consequences, as evidenced by high-profile cases like the Great Indian Bustard judgment. Judicial interventions of this nature have caused numerous sanctioned projects to stall, underscoring the need for greater regulatory clarity and predictability. Addressing such challenges is essential to restoring lender confidence and ensuring smoother execution across the infrastructure pipeline.
Policy initiatives by the Indian government over the past 18 months, particularly the Prudential Framework directions, warrant targeted refinements to enhance clarity and effectiveness. A primary concern involves land acquisition and RoW prerequisites. Ambiguities persist regarding the definition of land acquisition, especially in renewable energy. Further uncertainty surrounds the date of commencement of commercial operations (DCCO), which must be specified prior to disbursement. Questions remain on whether DCCO requires hard-coding, incorporation of buffers or other adjustments, leaving implementation open to interpretation. Issuing Reserve Bank of India clarifications or FAQs would address these gaps, aligning operational practices with the initiatives’ intended objectives and improving overall outcomes. Additionally, lenders such as banks, the National Bank for Financing Infrastructure and Development, infrastructure debt funds (IDFs) and national investment funds face constraints due to the exhaustive harmonised list of eligible infrastructure projects, which excludes emerging segments like smart metering. Expanding the list offers a low-hanging opportunity for high-impact adjustments, underscoring the need for greater regulatory clarity and predictability to restore lender confidence.
Jyoti Prakash Gadia
Traditional infrastructure sectors such as roads, power and renewable energy have matured into highly standardised asset classes. These projects now feature well-defined debt-equity structures, predictable repayment schedules and streamlined documentation. Financing decisions in this space have thus become efficient. Emerging infrastructure segments, however, present distinct challenges that require nuanced risk assessment. Additionally, areas such as electric vehicle (EV) charging stations, transmission line towers, certain road assets, and data centres – particularly those without full tenancy tie-ups – carry elevated technological or off-take risks. When these risks remain inadequately defined or mitigated, they can complicate financing structures and deter lenders.
Institutions are increasingly adapting to this evolving landscape. For instance, major banks have recently expanded their initiatives into newer asset classes such as student housing finance, where comprehensive risk policy frameworks have been developed from scratch. Such proactive experimentation demonstrates a willingness among financial institutions to align their risk policies with market opportunities, fostering innovation across the infrastructure financing space.
Working on one of India’s largest data centre projects has been particularly interesting. Financing for large-scale data centre projects presents unique challenges due to extended timelines and evolving technology. Lenders often limit funding to seven years – covering construction and initial leasing – expecting refinancing thereafter, which introduces significant refinancing risk at the six- to seven-year mark and adversely impacts the parent company’s credit rating. To address this, a structured solution involved securing a 20-year loan from the outset of construction, incorporating a put-and-call option at the seventh year. This approach provided end-to-end visibility, from land acquisition through full repayment, eliminating refinancing uncertainty and preserving the parent company’s rating. Such long-tenure financing mitigates the typical bifurcation in infrastructure lending, where pre-construction loans come from one set of institutions and post-operational refinancing from others like IDFs.
From a policy standpoint, an escrow-like mechanism could be introduced, allocating a certain suitable percentage of sale proceeds/cash-flow directly to repayment, depending on the nature of the project or revenue structure, with proceeds first servicing interest and the balance reducing principal. This sales or off-take-linked structure would replace rigid fixed equated monthly instalments (EMIs), offering greater structuring flexibility for long-tenure transactions. Bankers also exhibit reluctance toward put-and-call options in extended loans, such as 20-year facilities, citing asset-liability mismatches. However, incorporating the exercisability of such avenues after a suitable tenure – for instance, three years – effectively limits the ALM exposure to the corresponding tenure, mitigating this concern.
Suvek Nambiar
Infrastructure financing in India has witnessed a paradigm shift over the past decade. What was once considered a challenging and high-risk segment has undergone a comprehensive transformation, emerging as a more structured and resilient domain. The sector has effectively overcome many of its earlier inefficiencies and is now perceived in a new and more credible light. This transformation can largely be attributed to two key drivers that have redefined the fundamentals of infrastructure financing.
The first major factor is the evolution of the project bidding process. Projects today are largely bid out through competitive and transparent mechanisms, eliminating earlier concerns over inflated project costs and bid manipulation. This change has led to a stronger equity base in many projects, ensuring that sponsors retain significant skin in the game. With higher equity participation, project developers have a greater financial commitment, which in turn enhances lender confidence and ensures better recovery outcomes. Unlike legacy projects from 15 or more years ago – many of which faced serious financial distress and poor recovery rates – recent projects demonstrate robust equity structures that help secure timely and adequate debt repayment. The second defining change lies in the growing sanctity of project contracts across the infrastructure ecosystem. Modern infrastructure financing is fundamentally underpinned by cash flow-based lending, which depends on the inviolability of contractual rights and obligations. Recent judicial precedents, including rulings by the Supreme Court, have reinforced this principle, emphasising that the sanctity of contracts must not be compromised in ways that could harm project viability or investor confidence.
IDFs operate primarily in two formats: the NBFC model and the asset management company (AMC) model. While the AMC format has yet to gain significant traction, the NBFC structure has proven more successful, with three operational IDF-NBFCs currently active. Collectively, the three IDF-NBFCs are projected to maintain a portfolio of approximately Rs 600 billion this year, funded entirely through domestic resources raised in local markets.
This approach significantly enhances project viability by mitigating interest rate volatility, thereby improving credit ratings and overall financial stability. India Infradebt, for instance, manages a book of nearly Rs 300 billion, with 75 per cent allocated to the renewable energy sector. The overall experience with IDFs has been positive, marked by no losses over the past decade and minimal visibility of non-performing assets in the future.
In terms of regulatory asks, credit guarantee mechanisms have been discussed extensively but have yet to gain meaningful traction in India, despite their potential for future infrastructure financing. A more conventional instrument warrants revival: long-term infrastructure bonds, which previously supported robust market activity.
Anoop Sadani
Our Infrastructure Project and Structured Finance business began with relatively small-ticket transactions but has since evolved into one of the largest private sector infrastructure financing NBFC in the country. Today, Aditya Birla Capital is among the very few NBFCs capable of extending long-tenure project loans with maturities ranging from 15-20 years. The financing strategy encompasses both conventional project finance and structured lending solutions. In addition to providing direct project loans, the division engages in structured financing, such as lending at the holding company level to fund downstream project equity, acquisition financing and mezzanine loans at the project level.
The institution currently has an infrastructure and allied sectors exposure of approximately Rs 150 billion. The portfolio is predominantly concentrated in the renewable energy sector – a focus that emerged organically as this segment matured and attracted greater investor confidence. In the early years, when banks were reluctant to finance renewable projects, the division played a pioneering role in bridging the funding gap. As the sector developed and banks entered the space, the focus gradually shifted toward higher-value segments such as battery energy storage systems and cell manufacturing. Given the higher cost of funds typically faced by NBFCs, our institution strategically positions itself to serve borrowers capable of paying a moderate premium for customised solutions and faster turnaround times.
In general, lenders maintain an inherently risk-averse stance, often prioritising proven sectors over untested opportunities despite discussions of innovation. While new domains attract interest, actual deployment favours traditional infrastructure with incremental enhancements. For us, financing has advanced from standalone wind and solar projects to hybrids, and now encompasses round-the-clock power supply.
The roads sector, particularly under the National Highways Authority of India (NHAI), exemplifies the pinnacle of public-private partnership (PPP) execution. Other sectors and authorities stand to benefit from adopting NHAI’s standardised concession agreements and operational frameworks. Strengthening concession agreements across authorities would elevate PPP maturity sector-wide. Lenders are willing to assume construction risk but remain wary of embedded regulatory and approval uncertainties. Funding commitments frequently expose institutions to unforeseen delays in clearances, which should instead be front-loaded prior to disbursement.
Santosh Sankaradasan
Over the past decade, confidence in the sector has improved significantly, supported by a combination of more stable policy frameworks, the emergence of strong private players and sustained demand for infrastructure across segments. India continues to lag in several areas of infrastructure, which reinforces the long-term viability of well-structured projects. In the recent 12-18-month period, infrastructure capex has been led predominantly by public sector spending, with the government driving most of the project pipeline and outlay. Private capex has remained relatively subdued in several core sectors, which is visible, for instance, in the moderation of activity levels in the roads sector, where many private developers have been cautious in taking up new projects. In contrast, the renewable energy space has emerged as a high-traction segment, attracting a broad spectrum of investors keen to participate in its growth. Within this landscape, a distinct class of investors is increasingly willing to assume construction risk, recognising that the greatest returns often lie in the greenfield and early-stage phase of projects. Others prefer to wait and participate only once assets are operational, focusing on stable, long-term cash flows and lower risk profiles.
Current lending rates for data centre projects, in particular, typically range from 9-10 per cent, reflecting inherent technological uncertainties. Lenders encounter challenges such as volatile procurement costs for critical components, for instance, the NVIDIA chips, which introduce supply chain and pricing risks not present in more mature asset classes. Early perceptions of data centres as mere extensions of commercial real estate have evolved, with greater emphasis now placed on securing anchor tenants and validating technological viability. This maturation influences pricing dynamics, heavily influenced by sponsor strength, but declines materially once projects become operational and generate stable revenues. Such adjustments underscore the sector’s transition toward a more predictable, technology-driven infrastructure category.
The inclusion of infrastructure under priority sector lending (PSL) warrants strong advocacy, extending beyond the limited current coverage of select renewable segments. Broadening PSL eligibility would incentivise greater bank participation in infrastructure alongside agriculture and micro, small and medium enterprises, channelling more domestic capital into critical development areas. Harmonisation of the infrastructure eligibility framework requires further refinement to encompass additional segments, such as oil and gas midstream and refineries. While pipelines qualify as infrastructure, upstream and downstream activities merit inclusion to reflect their systemic importance. Shipyards, essential for bolstering the logistics ecosystem, provide another compelling case.
Satyendra Kumar Singh
The maturity of India’s infrastructure ecosystem has significantly improved over the years. Several sectors now demonstrate predictable and resilient cash flow patterns, offering greater stability and visibility for lenders. This evolution forms the foundation of sustainable infrastructure funding going forward. Beyond traditional sectors such as roads, airports, telecom, pipelines and renewables, the bank is strategically expanding its presence in emerging domains, including digital and urban infrastructure. A centre of excellence is also being established to focus on new-age sectors. The objective is not only to maintain leadership in these high-potential areas but also to build sector-wide capacity, impart knowledge and equip lending institutions to effectively finance the infrastructure opportunities of the future.
Our bank’s infrastructure lending portfolio currently stands as the largest and most diversified in the country, with an outstanding book of over Rs 4.5 trillion. In addition to this core portfolio, a substantial volume of lending has been undertaken through syndicated arrangements, where the institution has acted as lead arranger, conducting project appraisals, structuring transactions and subsequently bringing in other lenders to participate. SBI holds approximately 20 per cent of India’s total borrowing book, encompassing both corporate and personal loans. However, in the case of infrastructure, its market share rises to nearly 30 per cent, reflecting a depth of engagement developed over two to three decades of focused participation in the sector.
The sentiment toward the build-operate-transfer model shows potential for improvement. The PPP framework has proven highly successful in select sectors like airports. Hybrid annuity model (HAM) projects have also been successful. These models enhance project bankability, attracting both investors and lenders. However, other sectors require further evolution and deeper stakeholder involvement to achieve similar outcomes. Financial institutions are actively navigating this landscape through a full-cycle approach. On one end, greenfield projects are financed despite execution risks, maturing them into stable, cash-generating assets suitable for secondary platforms. On the other, structured financing supports these platforms, such as infrastructure investment trusts (InvITs), enabling them to acquire and monetise mature assets. This dual strategy provides operational flexibility, precise risk-return pricing and diversified exposure.
Infrastructure projects inherently require long-tenure financing, yet banks typically maintain shorter liability profiles limited to around five years. Lenders thus prefer funding greenfield assets that can be monetised and exited through platforms such as InvITs, real estate investment trusts, pension funds or emerging aggregated structures combining four to six assets.
Several policy-level interventions can further strengthen the infrastructure financing ecosystem. One key area is the enhancement of viability gap funding mechanisms, particularly for sectors that are currently less bankable or commercially viable. Equally important is the establishment of a more efficient and predictable arbitration framework. Ensuring clarity and enforceability of contractual obligations for all stakeholders remains critical. A transparent and time-bound arbitration process can significantly enhance the credibility of project agreements. Greater participation from state governments and urban local bodies is essential. They can adopt innovative project models such as the HAM model and frameworks that guarantee fair returns on capital similar to those used in airport funding. Additionally, newer mechanisms like asset monetisation can help recycle capital from mature assets where execution risk has already been mitigated.
Another policy enabler with substantial potential is the development of credit enhancement structures. Such mechanisms can help mobilise institutional financing for sectors with limited cash flow visibility by improving their creditworthiness and risk perception. Together, these measures can significantly expand the financing base for less mature sectors, enabling them to evolve as catalysts for long-term infrastructure growth.