Disclaimer: Education only, not credit or investment advice. Prudential rules and lender policies change. Read the current RBI master directions and the specific loan agreements.

In simple words (if you are in class 10)

Building a highway costs thousands of crores before it earns a single rupee. So companies borrow most of the money and repay it from future tolls or government annuities. Banks lend more cheaply once the road is open and earning, because the risky building stage is over. That is why owners often refinance: they replace expensive building-stage loans with cheaper long-term loans or bonds. InvITs are one of the biggest buyers of these finished, earning roads.

The professional view

Sanctioncredit appraisalConstruction1% provisionDCCO≤ 3 yrs deferralOperations0.4–1% provisionRefinancetakeout, bonds, InvIT
A highway loan's life under the RBI's 2025 directionsProvisioning shown for standard assets on new loans from 1 October 2025.

1. Who lends, and at which stage

Lender type Typical role
Public and private sector banks Construction loans, working capital, bank guarantees
NaBFID (National Bank for Financing Infrastructure and Development, set up under the NaBFID Act, 2021) Long-tenor infrastructure lending and market development (nabfid.org)
IIFCL (India Infrastructure Finance Company Ltd) Long-tenor lending, takeout finance and credit enhancement (iifcl.in)
Infrastructure NBFCs Construction and operational loans
Insurers, pension funds and bond investors Long-dated bonds after COD, often rated AAA at InvIT level
InvITs Buy operating SPVs and refinance them at the trust or HoldCo level

2. The RBI Project Finance Directions, 2025

The RBI issued the final directions on 19 June 2025. They apply from 1 October 2025 to new loans only, not to existing ones (Crisil Ratings, 26 June 2025; RBI press release).

Item Rule
Standard-asset provision during construction 1% (1.25% for commercial real estate), up from the earlier 0.4% to 1.0% range
Provision once operational 0.4% to 1.0%, depending on the segment
DCCO deferment for infrastructure Cumulative deferment of up to 3 years can keep the loan "standard" (2 years for non-infrastructure), with extra provision for each quarter of deferment
Moratorium The proposed six-month limit on the moratorium after DCCO was dropped in the final version

What it changes: construction-stage lending costs slightly more, and lenders look harder at land, approvals and the realism of the DCCO. That favours projects with land in hand and sponsors with a record of completing on time.

3. Key terms in a highway loan

  • DCCO (date of commencement of commercial operations): the date the loan assumes the road starts earning. Moving it changes the asset classification rules above.
  • Door-to-door tenor and repayment profile: often ballooned or sculpted to match CFADS. See DSCR, DSRA, MMRA and waterfalls.
  • Security: charge on project assets and receivables, assignment of project contracts, the escrow account and the substitution agreement.
  • Conditions: DSCR and other financial covenants, cash-trap levels, reserve accounts (DSRA, MMRA), restrictions on distributions, and change-of-control consent.
  • Sponsor support: cost-overrun undertakings and equity lock-in during construction.

4. Credit ratings and why they matter

Ratings drive pricing and who may invest. HAM annuity projects with a strong counterparty and funded reserves can be rated higher than toll projects of the same size, because they carry no traffic risk. CARE, Crisil, ICRA and India Ratings publish separate methodologies for toll, annuity, HAM and InvITs. Links are in the industry directory.

5. Refinancing and takeout

After COD, the risk falls. Owners then refinance through:

  • Takeout finance: a new lender takes over the loan after a set period of operations.
  • Bond issues: rated non-convertible debentures by the SPV, or more often by the InvIT, with a pooled portfolio and cross-collateralisation.
  • InvIT acquisition: the InvIT buys the SPV and replaces SPV debt with cheaper trust-level debt.

6. InvIT-level borrowing limits (after the April 2026 change)

Up to 25%25–49%49–70%Not allowedNo extra conditionsRating + unitholder approvalAAA, 6 distributions, 75% votepermitted uses only0%70%
InvIT borrowing bands (net borrowings ÷ value of InvIT assets)SEBI InvIT Regulations, regulation 20, as amended to April 2026.

Net borrowings are measured as a share of the value of the InvIT's assets:

  • Up to 25%: no extra conditions.
  • Above 25% up to 49%: credit rating and unitholder approval.
  • Above 49% up to 70%: AAA rating, a record of at least six continuous distributions, 75% unitholder approval, and the money used only for permitted purposes.

Regulation 20(3)(b)(ii) of the SEBI InvIT Regulations was amended on 17 April 2026, and a SEBI circular of May 2026 widened the permitted uses above 49%. Borrowing above 49% may now also fund capex that improves performance or adds capacity, major maintenance of road projects (non-routine maintenance required by the concession), and refinancing of debt originally raised for permitted purposes (principal only) (LiveLaw Biz, 15 May 2026). The full rule table is in SEBI InvIT rules explained.

7. Policy support in the pipeline

The Union Budget 2026-27 proposed an Infrastructure Risk Guarantee Fund to give lenders partial credit guarantees (TTA summary). Watch the scheme details for eligibility and pricing.

8. A lender's credit note in ten lines

  1. Sponsor's record and balance sheet.
  2. Concession type, counterparty and remaining life.
  3. Land in hand, approvals and the DCCO buffer.
  4. Traffic study (toll) or annuity mechanics (HAM).
  5. Base-case and downside DSCR, LLCR and the tail.
  6. Major maintenance plan and MMRA.
  7. Termination payment cover against debt.
  8. Claims, disputes and contingent liabilities.
  9. Security package and escrow waterfall.
  10. Exit route: takeout, bonds or InvIT.

Sources

Education only. This page is not investment, tax, legal or accounting advice, and it does not recommend buying, selling or holding any security. Laws and rules change: check the linked primary source and consult a qualified professional before acting.

Last reviewed 25 October 2026. Spotted an error? Tell us and we will correct it.