Government urges banks to lend more for infrastructure projects
What's the story
The Indian government has urged banks and financial institutions to step up their lending for infrastructure projects, according to Mint. The push comes as credit growth shows signs of slowing down. In recent meetings with top bank executives, finance ministry officials advised them not to hesitate in funding viable infrastructure projects, especially those with shorter gestation periods and quicker commissioning timelines.
Regulatory framework
RBI's new guidelines on project financing
The push from the government comes in light of the Reserve Bank of India (RBI)'s new guidelines, effective from October 1, 2025. These rules mandate strict adherence to project fundamentals such as financial closure, appointed date, date of commercial operations, and all key statutory clearances like land acquisition and right-of-way. The finance ministry officials said that as long as projects meet these RBI guidelines, there shouldn't be any slowdown in financing.
Economic outlook
India's economic growth forecast and risks
The renewed focus on infrastructure financing comes as India's economic growth is expected to moderate to around 6.5% in 2025-26. This is amid signs of a slowdown in private sector capital expenditure. Despite these projections, India continues to be the world's fastest-growing major economy. However, external factors such as trade protectionism through tariffs and geopolitical tensions remain key risks to the outlook for an import-dependent economy like India.
Lending challenges
Banks' reluctance to lend for infrastructure projects
Banks have been hesitant to lend for infrastructure projects due to their long gestation periods and the uncertainties and delays often faced in the completion cycle. According to the latest RBI data, lending to power, roads, ports, and airport sectors grew a mere 1% year-on-year in 2024. This is a sharp decline from 5.8% growth seen in 2023.
Alternative financing
Growth of infrastructure-focused NBFCs and financial institutions
Despite the slowdown in bank lending, infrastructure-focused non-banking financial companies (NBFCs) and financial institutions have continued to grow with over 14% lending growth. As of December 2024, India Infrastructure Finance Co. Ltd (IIFCL) and NaBFID have sanctioned loans worth ₹3 trillion and ₹1.75 trillion, respectively. NaBFID has disbursed ₹60,000 crore so far, with over half of its sanctions spanning long tenures of 15-30 years across roads, renewables, power, and railways sectors.
Future prospects
Experts' views on RBI's new guidelines impact
Experts believe that the RBI's new project finance guidelines for banks could revive long-term infrastructure lending. Shishir Mankad from EY Parthenon India said, "The new circular offers much-needed clarity by aligning provisioning norms with the project's lifecycle: design, construction, and operations." He added that it also mandates minimum participation thresholds in loan consortia to strengthen lender cohesion during resolution.