Project loans in India are a specialised form of long-term financing used to fund large infrastructure, industrial, and development projects. Unlike traditional business loans, repayment under project finance depends mainly on the future cash flows generated by the project itself. The project assets, rights, and contracts usually act as collateral security for the loan.
These projects typically involve long construction periods and extended gestation cycles. During the initial stages, there is little to no revenue until the project becomes operational. This makes project loans in India fundamentally different from regular term loans.
What is project finance?
Project finance can be defined as a credit facility used to fund the development of long-term projects such as infrastructure projects, industrial projects, or other development-oriented ventures. In this financing structure, the assets and rights under the project act as collateral security, and lenders rely primarily on project cash flows for repayment.
Because these projects run over long periods, lenders usually provide flexible repayment schedules, including moratorium periods during the construction phase. Learn more about lending policies from RBI.
How project finance works in India
Project finance meaning in India revolves around funding large projects where loan repayment is based on the project’s future income rather than the sponsor’s balance sheet. To achieve this, a Special Purpose Vehicle (SPV) is created.
The SPV is a separate legal entity formed specifically to execute and manage the project. It isolates project risks from the sponsor’s existing business operations. The SPV raises funds through a mix of equity from promoters and investors, along with project loans from banks, financial institutions, or bond markets.
A key feature of project finance is risk sharing. Risks such as construction delays, operational challenges, and market fluctuations are allocated among sponsors, lenders, contractors, and insurers based on who is best placed to manage them.
Once the project becomes operational, it starts generating revenue through toll collections, power sales, lease rentals, or service charges. These cash flows are used to service loan repayments. In many cases, after loan repayment and completion of the concession period, ownership may be transferred to the government under models such as Build-Operate-Transfer (BOT).
Key features of project loans in India
Focus on project viability
Lenders assess the technical feasibility, financial projections, and commercial viability of the project rather than relying only on the promoter’s credit history.
Long tenure and moratorium
Project loans are offered for long tenures, often with moratorium periods during construction, allowing repayments to begin after revenue generation starts.
Risk sharing structure
Risks are distributed among multiple stakeholders, reducing the burden on a single party and improving project sustainability.
SPV-based financing
The creation of an SPV ensures financial transparency and risk segregation, making large-scale financing possible.
Collateral through project assets
Project assets, contracts, and rights generally act as collateral. This results in limited or non-recourse financing, where lenders have restricted claims beyond the project itself.
Types of project financing in India
Project loans in India typically involve a combination of funding sources:
Debt financing
Term loans from commercial banks and financial institutions form the backbone of project funding.
Equity financing
Promoters and investors contribute equity capital, usually ranging from 20% to 30% of the total project cost.
Government support
Public-Private Partnership (PPP projects) may receive government assistance such as Viability Gap Funding (VGF) to enhance financial feasibility.
Eligible sectors for project loans
Project loans are commonly offered to capital-intensive sectors including:
Infrastructure
Roads, highways, bridges, ports, airports, dams, metro rail systems, power plants (hydel, thermal, solar), water supply, irrigation, sanitation, and sewerage projects.
Industrial projects
Manufacturing plants, steel and cement units, textile mills, industrial parks, and agro-processing facilities.
Social and commercial projects
Hospitals, educational institutions, hotels, commercial real estate, housing projects, and logistics hubs.
Who can apply for project loans in India?
Project loans are typically offered to:
- Mid and large corporates with turnover exceeding ₹500 crores
- Projects with total outlay of ₹500 crores or more
- Companies and SPVs with minimum exposure of ₹25 crores
- Developers executing infrastructure and public utility projects
This includes entities operating in Kolkata, Howrah, North 24 Parganas, South 24 Parganas, and across West Bengal.
Major lenders offering project finance in India
Project finance in India is supported by several banks and financial institutions, including:
- State Bank of India (SBI)
- Bank of Baroda
- Federal Bank
- Small Industries Development Bank of India (SIDBI)
- National Housing Bank (NHB)
Select NBFCs also participate in project financing based on sector and risk appetite.
Application process for project loans
The application process for project loans is detailed and requires careful preparation:
- Preparation of a Detailed Project Report (DPR)
- Securing regulatory approvals and clearances
- Promoter equity contribution (typically 20–30%)
- Submission of financial projections and feasibility studies
- Legal, technical, and financial due diligence by lenders
- Sanction and documentation
Due to the complexity involved, approvals may take several weeks or months.
How Creditcares supports project financing
Creditcares acts as a project finance advisory partner, helping businesses structure bankable projects, prepare lender-ready documentation, and navigate the approval process. Our role is to align project viability with lender expectations and ensure smooth coordination between sponsors and financial institutions.
Final takeaway
Project loans in India play a critical role in financing large-scale development and infrastructure growth. With cash-flow-based repayment, SPV structures, and risk-sharing mechanisms, project finance enables complex projects to become viable. With the right advisory support from Creditcares, businesses can successfully secure project funding and execute long-term projects efficiently.
