Over the past year, India’s infrastructure financing ecosystem has entered a phase of visible diversification. This has been driven by a shift from traditional bank-led financing to more capital-efficient routes. This shift comes at a critical juncture, as projects become larger, longer-term and more capital intensive. Moreover, India has strengthened its appeal 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 investments and mezzanine financing. Asset recovery has remained robust. Additionally, according to the World Bank, the country has become the largest recipient of private participation in infrastructure investment in South Asia, accounting for over 90 per cent of the region’s total.
Fiscal and policy measures keep the ball rolling
Historically, public expenditure has been the primary backer of infrastructure development. The overall budget has grown to Rs 12.2 trillion in 2026-27, along with a vision anchored in fiscal prudence, support for consumption, the enhancement of global competitiveness via deregulation and the government’s commitment to Viksit Bharat 2047. This has also slowly helped crowd in private capital. In line with this, all ministries have been directed to prepare a three-year pipeline of public-private partnership projects to spur private sector participation.
The scale of India’s infrastructure requirement cannot be met through public budgets or banks alone. Hence, government spending is increasingly being complemented by institutional capital, private investment, debt markets and asset monetisation. A Rs 1 trillion Urban Challenge Fund will be supporting initiatives under the themes of “Cities as Growth Hubs”, “Creative Redevelopment of Cities” and “Water and Sanitation”. The centre has unveiled its second asset monetisation programme, for 2025-30, targeting a mobilisation of up to Rs 16.7 trillion.
Mature model concession agreements have further improved lender confidence, contributing to a 44 per cent increase in bank loan exposure to the infrastructure and construction sectors, from Rs 11.58 trillion as of March 2020 to Rs 16.69 trillion as of March 2026. Hybrid annuity road projects, renewable energy projects and infrastructure investment trusts (InvITs) have found favour among commercial banks. The Infrastructure Risk Guarantee Fund is another important step towards reducing early-stage project risk. Additionally, there have been a number of financial closures. A key recent one has been the Avaada Group’s loan tie-up of about $1.3 billion for a 2,150 MW renewable energy portfolio sanctioned by the State Bank of India, REC Limited and Canara Bank.
The Draft Project Finance Directions 2025 have introduced a refined, life cycle-based risk framework. By extending allowed delays in commercial operation dates, the Reserve Bank of India (RBI) finally acknowledged operational realities. Moreover, stabilising non-banking financial company (NBFC) funding channels, along with clearer consumer-credit classifications, has reduced funding stress and reopened bank lines to NBFCs, helping diversify credit flows across both retail and infrastructure sectors. In another noteworthy move, under the Non-Fund Based Credit Facilities Directions 2025, all regulated entities, including banks, alternative investment funds, NBFCs and development finance institutions, can now offer credit enhancement to help infrastructure companies improve their ratings and free up bank limits.
Previously, Indian-leveraged buyouts relied heavily on offshore lenders, NBFCs and private credit funds, partly due to RBI restrictions. By allowing banks to finance acquisitions and easing lending against listed debt, RBI is now shifting deal financing towards the regulated banking system. Alongside these measures, the Securities and Exchange Board of India (SEBI) has introduced electronic trading through the request for quote platform, facilitated retail access through online bond platforms, strengthened governance standards for credit rating agencies and debenture trustees, and streamlined issuance norms. RBI has also strengthened the settlement architecture by introducing tri-party repo and credit default swaps, while supporting the development of repo and clearing mechanisms. Together, these measures are helping deepen the debt market, improve market access and strengthen the overall financing ecosystem.
Bridging funding shortfalls through new routes
With the rise in infrastructure investments, various financing avenues have come in and are being scaled up. InvITs are steadily going mainstream. The introduction of the National Highways Authority of India’s (NHAI) retail bonds and the National Bank for Agriculture and Rural Development’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 active too. Monetisation efforts are contributing to resource generation. Blended finance is starting to gain momentum. Moreover, environmental, social and governance debt is carving out a more defined niche, signalling a shift towards a broader, more flexible financing landscape.
NMP Phase II
At its heart, the overall National Monetisation Pipeline (NMP) tackles a problem common to all economies – how can a government fund massive infrastructure expansion without sinking deeper into debt or crowding out private investors? The answer lies in unlocking value from existing public assets and recycling the proceeds into new infrastructure. Against this backdrop, the scale of NMP Phase II is massive. To appreciate the recently launched plan better, the numbers need to be put into perspective. Consider the original 2021 pipeline, which targeted Rs 6 trillion over four years. By the government’s own records, nearly 89 per cent of that goal was achieved. And now, between 2025-26 and 2029-30, the government aims to monetise assets worth approximately Rs 16.7 trillion. This target has established NMP Phase II as one of the most ambitious asset-recycling programmes ever launched by a sovereign government.
InvITs take the lead
The InvIT market has expanded rapidly, evolving into a more mature asset class backed by stronger structures, a maturing regulatory framework and greater investor clarity. Today, there are 28 SEBI-registered InvITs with an overall asset under management (AUM) of more than Rs 7 trillion across multiple infrastructure sectors. As public balance sheets face competing demands, asset monetisation is becoming critical to sustain investment while maintaining fiscal prudence.
Roads and energy remain the front runners, accounting for a significant share of the market and driving wider adoption. In highways alone, InvIT AUM is projected to more than double, from Rs 2.46 trillion to Rs 5.45 trillion by 2030. With these platforms generating significant and stable revenues, policy stability will be key to building investor confidence across other sectors. InvITs have moved beyond being an alternative funding route and are becoming central to India’s infrastructure financing strategy.
Surety bond market finds its footing
The surety bond landscape has changed meaningfully, evolving from being a policy aspiration to becoming an operational instrument. The road sector has been the primary engine of growth for surety bonds. In the recent past, NHAI received 164 insurance surety bonds in a single month – 20 for performance security and 144 for bid securities. NTPC Limited, SJVN Limited, NHPC Limited, and GAIL India have adopted it in the energy sector. Rail Vikas Nigam Limited has done so in the railways sector. Indian Oil Corporation Limited has extended the product to the hydrocarbon sector. The coal ministry has allowed insurance surety bonds to replace bank guarantees. Additionally, Bharat Sanchar Nigam Limited has included the product in the telecom sector.
The adoption of surety bonds is becoming increasingly visible. Going by the current pace of surety bond issuances, the market is anticipated to hit Rs 1 trillion by 2029-30. This number clearly reflects the potential of these bonds, as customers and insurers are now beginning to see the operational and liquidity advantages of these insurance-backed guarantees.
Assets changing hands
Investors continue to favour Indian infrastructure assets, although merger and acquisition activity has remained subdued in recent months. Investor sentiment has turned somewhat cautious amid renewed geopolitical tensions, higher crude oil prices, rupee depreciation against the US dollar, and persistent valuation gaps between buyers and sellers, all of which has led to softer deal-making. In H1 2026, the sector attracted around $2.11 billion.
Even so, investor appetite for emerging infrastructure opportunities remains strong. A wide range of investors is becoming increasingly bullish on not only data centres but also the broader ecosystem of telecom infrastructure semiconductor design, cloud infrastructure, and AI computing platforms. Notable deals include Blackstone-backed AirTrunk’s commitment for a $30 billion investment in India, alongside major investments in EdgeConneX, the Princeton Digital Group, Nxtra, and CtrlS.
NBFCs rise to the fore
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. NaBFID, for instance, has combined both financial muscle and developmental targets. It scaled up its infrastructure financing operations, with cumulative loan sanctions crossing Rs 3 trillion and disbursements exceeding Rs 1 trillion as of December 2025. India Infrastructure Finance Company Limited recorded its highest-ever annual sanctions of Rs 576.8 billion in 2025-26, up 13 per cent, while disbursements rose 16 per cent to Rs 329.72 billion. REC’s sanctions increased 21 per cent to Rs 4.09 trillion, while disbursements rose 10 per cent to Rs 2.11 trillion. Meanwhile, PFC sanctioned around Rs 2.85 trillion and disbursed Rs 1.65 trillion during the year.
Betting big on alternative capital routes for future development
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, India is finally building what the sector has long sought – a deeper pool of long-term capital and a more bankable, yield-oriented infrastructure asset class.
India’s infrastructure financing landscape is no longer defined by a shortage of funding avenues. The next challenge, however, is scale. The country is expected to require nearly Rs 800 trillion of infrastructure investment over the next two decades, with annual infrastructure spending needing to rise from around Rs 20 trillion to Rs 40 trillion. Meeting this requirement will take a much broader mobilisation of private and institutional capital. Pension funds, insurers and provident funds collectively manage around Rs 125 trillion, yet they remain significantly underexposed to infrastructure. Unlocking a larger share of this patient capital could materially strengthen the financing pipeline. At the same time, private equity will need to move beyond selective opportunities.
The next steps are clear – a move from a system that funds infrastructure to one that continuously mobilises, recycles and redeploys capital. This shift will be essential for financing the next phase of infrastructure asset development. After all, India’s infrastructure ambitions will be only as strong as the capital backing them.
Harman Mangat
