In the past one year, India has steadfastly maintained its status as a favourable investment destination for global and domestic investors. Drawn by compelling valuations, strategic investors have poured in capital, aiming for more exposure in brownfield and greenfield assets. Multilateral banks have deepened their ties. A diverse mix of deals has been structured around bonds, debt, equity investment, and mezzanine financing. Additionally, asset recovery has remained robust.
More importantly, India’s regulatory environment has improved considerably. Structural reforms, along with the presence of strong institutions, have positioned the country well. The government, along with the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), has rolled out targeted policy measures to increase capital availability. These measures range from takeout financing and credit enhancement schemes to the creation of infrastructure debt funds and the National Investment and Infrastructure Fund, as well as relaxed external commercial borrowing and project financing norms.
Fiscal and policy measures keep the ball rolling
As the primary backer of infrastructure creation, the centre has sustained a robust capital expenditure (capex) commitment to the sector, allocating Rs 11.2 trillion in the 2025-26 budget estimate – up from Rs 10.2 trillion in the 2024-25 revised estimate – reflecting a 10 per cent annual increase. Reinforcing the government’s strategic focus on infrastructure-led growth, all ministries will now prepare three-year pipelines of public-private partnership (PPP) projects to spur private sector participation. A Rs 1 trillion Urban Challenge Fund will support initiatives under the themes of “Cities as Growth Hubs”, “Creative Redevelopment of Cities” and “Water and Sanitation”. Building on successful capital recycling, the central government has also unveiled its second asset monetisation programme for 2025-30, targeting the mobilisation of up to Rs 10 trillion for new infrastructure development.
Mature model concession agreements (MCAs) have further improved lender confidence, contributing to a 26 per cent increase in bank loan exposure to the infrastructure and construction sectors, from Rs 11.58 trillion as of March 2020 to Rs 14.7 trillion as of March 2025. Hybrid annuity road projects, renewable energy projects and infrastructure investment trusts (InvITs) have found favour among commercial banks. Additionally, there have been a number of financial closures. A key one has been Bharat Petroleum Corporation Limited’s loan tie-up worth Rs 318 billion with a consortium of six banks for its Bina refinery expansion and petrochemical project.
Notably, NBFCs are no longer shadow banks. Improving asset quality, healthy capitalisation levels, robust risk mitigation and increasing demand for infrastructure credit have strengthened the growth prospects for these lending institutions. Moreover, they are currently on a capital-raising spree. With a new RBI deadline for top-tier NBFCs to be listed by September 2025, there is a rush to tap the equity markets, especially considering the anticipated robust uptick in credit demand, particularly from the infrastructure sector. To keep pace with the evolving policy framework, the RBI’s Project Finance Directions, effective October 1, 2025, will provide a balanced regulatory framework to further improve transparency and governance while easing the pressure on lenders. Key measures include setting minimum lender exposure thresholds, extending permissible delays in the date of commencement of commercial operations up to three years and rationalising provisioning norms to improve risk management.
In another noteworthy move, under the Non-Fund Based Credit Facilities Directions, 2025, all regulated entities, including banks, AIFs, NBFCs and DFIs, can now offer credit enhancement to help infrastructure companies improve their ratings and free up bank limits.
Backed by policies that align with the interests of key stakeholders, the infrastructure sector remains the lynchpin of national progress.
Bridging funding shortfalls through innovative routes
With the rise in infrastructure investments, various financing avenues have come in and are being scaled up. InvITs have gained traction. The introduction of the National Highways Authority of India’s (NHAI) retail bonds and NABARD’s social bonds have further contributed to this trend. Players such as Alpha Alternatives, NEO, and Investec have launched infrastructure-focused private credit funds. Local pension funds and family offices are becoming increasingly active in this space. Monetisation efforts are also contributing to resource generation. Additionally, blended finance, although at early stages, is starting to gain momentum.
Bond issuances in full swing
The bond market has addressed legacy bottlenecks. It is now characterised by longer tenor, favourable risk profiles, competitive risk‑adjusted returns and stronger recovery prospects. Reflecting these improvements, infrastructure bond issuances have hit a record high, raising over Rs 750 billion in 2024-25 (as of November 2024). Expectations of rate cuts and falling yields on government securities are likely to further accelerate bond activity in the near term.
Environmental, social and governance (ESG) bonds are also rapidly gaining momentum, propelled by growing investor interest in sustainable finance, SEBI’s regulatory clarity and the global push for decarbonisation. In 2024-25, ESG issuances totalled Rs 87.43 billion across 27 deals, with many issues witnessing strong oversubscription. The renewable energy sector led the charge, with the key issuers being ReNew, IREDA and Avaada. Further, Larsen & Toubro raised Rs 5 billion via India’s first listed sustainability-linked bond, while the Pimpri Chinchwad Municipal Corporation’s green bond issuance of Rs 1 billion received 5.13 times the bids.
Banking on InvIT growth
Fuelled by the prospects of stable returns, overall fundraising via InvITs has surpassed the Rs 1 trillion mark. Currently, there are 26 SEBI-registered InvITs, five of which are publicly traded. Proactive and comprehensive regulatory support from SEBI has been instrumental in propelling the market to new heights. With the National Monetisation Pipeline 2.0 now on the horizon and the road ministry planning to phase out toll-operate-transfer, InvIT-led monetisation is set to rise significantly.
NBFCs step up
In just two years of operations, the National Bank for Financing Infrastructure and Development has extended loans to nearly 200 projects – 95 per cent of which are on schedule. Building on this strong momentum, it is targeting Rs 1.2 trillion in sanctions for 2025-26. It also plans to access the dollar bond market, multilateral credit lines, and external commercial borrowings, and aims to scale its asset base to Rs 4 trillion by 2028-29. Meanwhile, India Infrastructure Finance Company Limited has achieved sanctions of Rs 511.24 billion, up by 21 per cent, and disbursements of Rs 285.01 billion, up by 28 per cent. REC Limited has disbursed Rs 1.91 trillion, an annual increase of 18 per cent and sanctioned Rs 3.37 trillion. The Power Finance Corporation has sanctioned Rs 3.61 trillion, an increase of 28 per cent and disbursed Rs 1.68 trillion, marking a 31 per cent jump.
Seizing the monetisation momentum
Monetising government-controlled assets is widely recognised as critical for growth. The road sector is a huge enabler in this monetisation drive, supported by NHAI’s extensive portfolio of de-risked brownfield highways. NHAI has now launched strategies for monetisation, including expanding the investor base, enhancing transparency, and distributing relevant information to investors to maximise the value of its operational highway assets. Extending this momentum to other sectors, the centre has approved a new framework allowing government departments and organisations to acquire assets held by Bharat Sanchar Nigam Limited (BSNL), Mahanagar Telephone Nigam Limited (MTNL) and ITI Limited without undergoing an auction process. So far, BSNL and MTNL have mobilised a cumulative Rs 129.85 billion from the monetisation of land, buildings, tower and fibre.
Changing hands
The infrastructure sector continues to be favoured by private equity and venture capital investments. It is noteworthy that the sector is now surpassing industries such as financial services and technology to become the front-runner. In 2024-25, the infrastructure sector attracted approximately Rs 3 trillion across around 200 merger and acquisition deals. Road assets led the way, with the energy sector following closely. A wide range of investors is becoming increasingly bullish on new electric vehicle (EV) opportunities, vying to claim a share of the EV pie. Funding in this space crossed $2 billion for the first time in 2024‑25, with even more capital anticipated to keep pace with its growth.
Diversifying capital flows
The infrastructure sector is at an interesting juncture today. Although much has been said about the lingering issues across subsectors, the government’s policy initiatives have significantly improved the landscape, creating a lender‑friendly environment. After two decades of discussions, the country has finally achieved what had been widely talked about – attracting long-term capital for infrastructure assets, making it a bankable, yield-driven opportunity. In fact, now, a diverse set of lenders can step in at different stages of projects, catering to varying risk appetites and enabling project financing.
The next phase will require careful attention. It is essential to safeguard foreign investor interests, replicate the successful road monetisation strategy in other sectors, and ensure contracts are strictly honoured. Alternative funding sources should not only coexist with banks and NBFCs but should also consistently outperform them. Above all, accelerating private capital flows will be crucial for driving future infrastructure development.
With a planned investment of Rs 143 trillion on the table through 2030, India will need all hands on deck. This includes greater retail participation in InvITs, continuous asset monetisation, increased bond financing and a stronger pull for foreign investments.
The foundation has been laid. And, with momentum on its side, India stands ready to etch its infrastructure growth story.
Harman Mangat
