This article was originally published in The International Project Finance and Infrastructure Review at Key Developments & Current Trends in Project Finance and Infrastructure in India – From a Legal Perspective.

I. INTRODUCTION

India’s project finance and infrastructure sector has witnessed significant regulatory reform during the period 2025-26. The Union Budget of India for the year 2026-27 raised the capital investment outlay for infrastructure to approximately USD 132.8 billion[1], and India’s infrastructure investment is projected to rise from 5.3% of GDP in FY24 to 6.5% by FY29.[2] Keeping in mind the scale of public investment, the Indian regulatory framework has been amended to enable increased private capital investment into the infrastructure sector.

Between October 2025 and March 2026, the Reserve Bank of India (“RBI”) and the Indian government introduced a series of reforms that collectively reshape how infrastructure transactions are financed, structured, and refinanced in India. These reforms include the liberalization of External Commercial Borrowings (“ECBs”) under the Foreign Exchange Management Act, 1999 (“FEMA”), the introduction of a structured acquisition finance framework under the RBI’s credit facilities directions and the continued evolution of Infrastructure Investment Trusts (“InvITs”).

II. ECBs – THE REVISED FEMA FRAMEWORK

External Commercial Borrowings have long served as a vital instrument for Indian entities to access international capital. The regulatory framework governing ECBs is prescribed by the RBI under Sections 6 and 47 of FEMA, read with regulations, master directions, and circulars issued from time to time. The Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (the “Revised ECB Regulations”), which came into effect on February 16, 2026, represent a comprehensive overhaul of this framework.[3] All ECB-related provisions that were previously dispersed across the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, the RBI Master Directions on External Commercial Borrowings, Trade Credits, and Structured Obligations dated March 26, 2019, and various FAQs, have now been consolidated into a single set of regulations.

The Revised ECB Regulations simplify borrower eligibility by providing that any person resident in India (other than an individual) that is incorporated, established, or registered under any central or state legislation can avail ECBs. This includes limited liability partnerships registered under the Limited Liability Partnership Act, 2008, and entities undergoing corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016, provided the resolution plan specifically permits it. The lending cap for individual borrowers under the Revised ECB Regulations has been revised from the earlier USD 750 million to USD 1 billion, or an amount that would not result in total domestic and external borrowings exceeding 300% of the borrower’s net worth as per its latest audited balance sheet, whichever is higher.[4] On the lender side, the scope of recognised lenders has been expanded to include all persons resident outside India, irrespective of whether their jurisdiction is Financial Action Task Force (“FATF”) or International Organisation of Securities Commissions (“IOSCO”) compliant.[5] Additionally, offshore and International Financial Services Centre (“IFSC”) branches of Indian banks are also now allowed to extend INR-denominated ECBs. The minimum average maturity period has been standardised at three years regardless of end-use, with a shorter period of one to three years available for manufacturing companies for ECBs of up to USD 150 million. Under the Revised ECB Regulations, the all-in-cost ceiling for ECBs is now determined by prevailing market conditions, except in the case of ECBs extended to manufacturing companies with a minimum average maturity period of less than three years, where the all-in-cost ceiling is aligned with the pricing applicable to trade credits, namely, the benchmark rate plus 300 basis points for foreign currency-denominated ECBs and the benchmark rate plus 250 basis points for INR-denominated ECBs.

The most consequential change for infrastructure transactions is express permission for ECBs to fund acquisition financing. Transactions involving mergers, demergers, amalgamations, arrangements, or acquisition of “control” in accordance with applicable legislation, which was previously an expressly restricted end-use are now being allowed. The Revised ECB Regulations require that such acquisition be for strategic purposes, driven by the core objective of creating long-term value through potential synergies rather than for short-term gains.[6] ECBs can also now be utilised for acquisition of land for construction and development of real estate projects, as such activities have been expressly excluded from the definition of “real estate business” under the Revised ECB Regulations.[7] The practical significance of the Revised ECB Regulations is that Indian project companies and holding vehicles now have a parallel offshore funding route for control acquisitions, distinct from and complementary to the domestic bank acquisition finance framework. These reforms also position India to attract leveraged acquisition financing and private capital lending that has historically bypassed Indian targets on account of constraints in the available financing options under the regulatory framework.

III. ACQUISITION FINANCE – RBI’S FRAMEWORK FOR M&A FUNDING

Historically, the RBI restricted Indian commercial banks from financing corporate acquisitions, and only narrow carve-outs existed, including financing for promoter contribution to new companies and acquisition of equity in overseas joint ventures or wholly owned subsidiaries classified as strategic investments.[8] As a consequence, Indian corporates undertaking domestic or cross-border acquisitions were largely dependent on high cost non-bank related funding sources including but not limited to private credit funds, non-banking financial companies, and leveraged buyouts. This position has now been changed through a phased regulatory process. The first indication of reform was introduced by the notification of the RBI (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (the “Amendment Directions”) on February 13, 2026, which established the initial framework for bank-led acquisition financing.[9] However, on March 30, 2026, the RBI issued the (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (Revised) (the “Revised CF Directions”), which superseded the February notification in its entirety.[10]

Under the Revised CF Directions, acquisition finance can be extended to companies that satisfy prescribed eligibility criteria at the time of sanction of the acquisition finance, including a minimum net worth of INR 500 crore, net profit after tax in each of the preceding three consecutive financial years. For unlisted entities, additionally, an investment-grade credit rating (BBB- or higher) from a recognised credit rating agency is required to avail acquisition finance. Financing can be extended to the acquiring company directly, to an existing non-financial subsidiary in India or overseas, or to a step-down special purpose vehicle set up specifically for the acquisition, including joint special purpose vehicle with another company.[11] Bank funding is capped at 75% of the independently assessed acquisition value, with the acquirer required to contribute at least 25% from its own funds.[12] A mandatory corporate guarantee from the acquiring company is required, the acquiring company’s post-acquisition consolidated debt-to-equity ratio must not exceed 3:1 on a continuous basis, and the bank’s total acquisition finance exposure is capped at 20% of its consolidated net worth. The acquisition finance must be secured by financial instruments issued by the target company through which control is acquired, subject to the provisions of Section 19(2) of the Banking Regulation Act, 1949 (as amended from time to time), which restricts a bank from holding more than 30% of the paid-up share capital of a company. Other unencumbered assets of the borrower and personal guarantees of the promoter may be obtained as additional collateral in accordance with the lending bank’s internal policies. Where the acquisition finance is extended to a subsidiary or a special purpose vehicle rather than to the acquiring company directly, a corporate guarantee from the acquiring company is mandatory. The Revised CF Directions also broadened the definition of “acquisition finance” from the acquisition of equity shares or compulsorily convertible debentures leading to control, to the broader concept of acquiring “control” itself, including by way of mergers and amalgamations.[13]

Refinancing of existing acquisition debt is permitted only after control has been fully established and solely for the purpose of retiring that acquisition-finance debt, and the 12-month completion window is computed from the date of first disbursement rather than the date of execution of the acquisition agreement.[14]

The convergence of the domestic bank framework for acquisition with the Revised ECB Regulations creates, for the first time, parallel onshore and offshore routes for acquisition financing of Indian infrastructure assets, and for infrastructure sponsors seeking to consolidate platforms in roads, transmission, and digital infrastructure. The regulatory barrier that previously necessitated reliance on expensive non-bank capital has been substantially removed.

IV. INVITs AND REITs – KEY REFORMS AND CHALLENGES

Infrastructure Investment Trusts, regulated by SEBI under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 (the “InvIT Regulations”)[15], have emerged as a market trend for channelling capital investment in Indian infrastructure assets.[16] As of July 2026, 28 InvITs are registered with SEBI and 24 InvITs are listed on Indian stock exchanges, with the cumulative assets under management of listed InvITs and Real Estate Investment Trusts (“REITs”) standing at approximately USD 111.8 billion. The asset classes held through InvITs have expanded beyond roads and transmission to include renewable energy assets (such as the Virescent Renewable Energy Trust sponsored by an affiliate of KKR) and digital infrastructure (such as the Data Infrastructure Trust holding tower assets), reflecting the growing acceptance of the InvIT structure across infrastructure sub-sectors. SEBI issued a consolidated Master Circular for Infrastructure Investment Trusts on July 11, 2025, bringing together all operational circulars issued since the notification of the InvIT Regulations into a single reference document and streamlining compliance requirements for investors, sponsors, and trustees.[17]

The period 2025–2026 has seen several significant regulatory developments specific to InvITs. By way of the SEBI (Infrastructure Investment Trusts) (Amendment) Regulations, 2025[18], notified on April 2, 2025, SEBI introduced major amendments to the InvIT framework. In November 2025, SEBI approved the reclassification of REITs as equity instruments for the purpose of investments by mutual funds and specialised investment funds.[19] While this reclassification does not directly amend the InvIT Regulations, it frees up the combined investment limit that mutual funds previously shared between REITs and InvITs (10% for mutual fund schemes and 20% for specialised investment funds), making the entire allocation available for investment in InvITs alone. This is expected to deepen institutional demand for InvITs. In May 2026, SEBI issued two circulars of direct relevance to the infrastructure sector, the first addresses the status of SPVs held by InvITs upon the conclusion or termination of a concession agreement, providing clarity on what happens to the InvIT structure when the underlying PPP concession expires or is terminated[20]; and the second clarifies the permitted use of fresh borrowings for InvITs where net borrowings exceed 49% of the value of InvIT assets, confirming that refinancing of existing debt, capital expenditure on infrastructure assets, and major maintenance expenses are permissible end-uses of borrowings even above the 49% threshold.[21]

Additionally, in April 2026, the SEBI Board approved a set of ease-of-doing-business measures for InvITs, which include permitting privately placed InvITs to invest up to 10% of the value of InvIT assets in greenfield (under-construction) infrastructure projects.[22] Notwithstanding these reforms, InvIT transactions continue to present several legal complexities that require careful navigation. These include requirements for obtaining consent under concession agreements (particularly model concession agreements) and project finance documentation for the transfer of assets into InvIT structures, the treatment of change of control and assignment restrictions under project contracts, including operations and maintenance agreements, engineering procurement and construction contracts, and revenue-sharing arrangements with governmental authorities. These provisions get triggered upon the insertion of an InvIT as the ultimate beneficial owner even where the asset-owning SPV itself remains unchanged. The consent mechanism under model concession agreements does not always sit comfortably with the layered holding structures through which InvITs typically acquire and hold infrastructure assets, and lender consent processes under project finance documentation can introduce considerable delay and negotiation differences, especially where multiple lending consortium members are involved. Equally significant is the structuring of pledge mechanics where the InvIT holds through a holding company rather than directly at the asset-owning SPV level. Further, the evolving interplay between SEBI’s independent valuation norms prescribed under the InvIT Regulations and actual market pricing agreed between parties on asset sales still remains a problem. The independent valuer’s assessment, conducted in accordance with the prescribed methodology, may diverge materially from the commercially negotiated price, creating potential complications around regulatory approval, disclosure, and the justification of any premium or discount to the independently determined value.[23]

From a financing perspective, financial institutions typically require InvIT and REIT transactions to be structured with comprehensive security packages. These ordinarily include first-ranking mortgages over underlying immovable properties held by the InvIT and REIT, assignment of rental cash flows and receivables generated by the underlying assets, pledge of equity interests held by the InvIT or REIT in the borrowing entity, and such other enforceable security interests as may be applicable to the asset class and transaction structure. This mortgage requirement applies irrespective of whether the acquisition is structured directly or indirectly through the purchase of equity shares in a borrowing entity, holding company, or any other ownership interest in an entity that holds the immovable property.

V. REVISED PROJECT FINANCE DIRECTIONS – IMPACT ON INFRASTRUCTURE LENDING

The RBI’s directions on project finance, originally issued on June 18, 2025 and subsequently consolidated into master directions on November 28, 2025, now apply to all scheduled commercial banks, non-banking financial companies registered under Section 45-IA of the Reserve Bank of India Act, 1934, and All-India Financial Institutions (“AIFIs”), in respect of their project finance exposures.[24] These directions impose significantly tighter discipline on how lenders originate, disburse, and monitor loans. Lenders must now ensure financial closure with clearly documented terms across all participants in a consortium, maintain a common Date of Commencement of Commercial Operations across all lenders, follow construction-linked disbursement protocols where funds are released only against verified construction milestones rather than on the basis of drawdown requests alone, and undertake early stress recognition with calibrated provisioning norms for project delays and cost overruns.[25] The most operationally significant requirement, particularly for the renewable energy and transmission sectors, is the mandate for sufficient land or right-of-way before first disbursement, with a threshold of 75% for non-PPP projects.[26] Transmission line projects remain subject to individual lender assessment rather than a fixed percentage threshold. These requirements materially change the development sequencing for renewable energy projects, where sponsors typically aggregate land across hundreds of fragmented parcels spread over multiple revenue villages and for transmission projects, which routinely encounter compensation disputes and forest clearance delays.

The market response to these directions has been visible. Bond and listed debt structures, including non-convertible debentures listed on stock exchanges, are increasingly preferred for operational assets and refinancings. InvIT-backed monetisation, as discussed above, continues to grow as the preferred route for recycling capital from completed infrastructure. From a documentation standpoint, loan agreements for infrastructure projects now require more detailed conditions precedent relating to land status and right-of-way acquisition, disbursement triggers linked to certifications from the independent engineer appointed under the project agreements, and provisioning-related financial covenants. For borrowers, this translates into longer lead times between project award and financial close, and into higher upfront equity contribution before bank debt becomes available.

In the Indian project finance context, lenders have increasingly adopted cash sweep mechanisms in loan documentation. Cash sweep provisions give lenders an option to apply surplus cash flows after meeting operational expenses, scheduled debt service, budgeted capital expenditures, and other permitted disbursements toward accelerated debt repayment. These provisions are designed to reduce lender exposure by ensuring that excess liquidity is deployed to prepay outstanding debt rather than being distributed to equity holders or used for discretionary purposes. While cash sweep mechanisms serve a prudent risk-mitigation function from the lender’s perspective, aggressive cash sweep structures can create operational constraints for borrowers by restricting their ability to upstream dividends to holding companies, limiting equity returns, and reducing the sponsor’s capacity to reinvest in project enhancements or fund new capital expenditure without obtaining prior lender consent.

VI. CONCLUSION

The regulatory developments of 2025–26 represent a considered recalibration of India’s infrastructure financing framework. Viewed together, they expand the available sources of capital through the liberalisation of ECBs under FEMA and the introduction of the bank acquisition finance regime under the Revised CF Directions. For international lenders and investors, the opportunity set has expanded materially as ECBs can now fund strategic control acquisitions, commercial banks can finance such transactions within defined prudential limits, and InvITs offer a regulated and liquid exit route for operational assets. However, the regulatory framework demands careful structuring, particularly around FEMA end-use compliance, leverage caps, prudential ceilings, subordination requirements in multi-tiered financing arrangements, and land-acquisition sequencing to ensure that draw-down schedules align with project milestones and regulatory approvals. The regulatory direction for InvITs and REITs is clearly positive, with SEBI seeking to deepen participation and provide greater operational flexibility. However, the framework still does not fully address the transaction-level frictions that arise from concession consents, lender approvals, layered holding structures and valuation mismatches. Unless these practical issues are better aligned across regulators, concessioning authorities and financing documents, InvITs may continue to function as efficient capital market vehicles but will require further refinement.

As India seeks to become a USD 30 trillion economy by 2047, infrastructure financing will remain a critical enabler of economic growth. The reforms lay the groundwork for multi-layered financing transactions that will characterize the next phase of India’s infrastructure development.

[1] Union Budget 2026-27, Ministry of Finance, Government of India – https://www.indiabudget.gov.in

[2] India Brand Equity Foundation (IBEF), “Infrastructure Sector in India” – https://www.ibef.org/industry/infrastructure-sector-india

[3] Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, notified by the Reserve Bank of India – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13306&Mode=0

[4] ibid

[5] “India credit boom: Private debt, NCDs, ECB reforms, GIFT City,” India Business Law Journal, February 9, 2026 – https://law.asia/private-credit-and-ecb-reforms/

[6] Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, notified by the Reserve Bank of India – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13306&Mode=0

[7] ibid

[8] Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025 – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13156&Mode=0

[9] RBI (Commercial Banks – Credit Facilities) Amendment Directions, 2026 – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13297&Mode=0

[10] RBI (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (Revised) – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13346&Mode=0

[11] ibid

[12] Own Funds are defined to only include internal accruals, asset sale or redemption proceeds, or fresh equity.

[13] RBI (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (Revised) – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13346&Mode=0

[14] ibid

[15] SEBI Board Memoranda – https://www.sebi.gov.in/sebi_data/meetingfiles/apr-2026/1775545313668_1.pdf

[16] SEBI (Infrastructure Investment Trusts) Regulations, 2014 – https://www.sebi.gov.in/legal/regulations/feb-2023/securities-and-exchange-board-of-india-infrastructure-investment-trusts-regulations-2014-last-amended-on-february-14-2023-_68062.html

[17] Master Circular for Infrastructure Investment Trusts, July 11, 2025 – https://www.sebi.gov.in/legal/master-circulars/jul-2025/master-circular-for-infrastructure-investment-trusts-invits-_95233.html

[18] SEBI (Infrastructure Investment Trusts) (Amendment) Regulations, 2025 – https://www.sebi.gov.in/legal/regulations/apr-2025/securities-and-exchange-board-of-india-infrastructure-investment-trusts-amendment-regulations-2025_93279.html

[19] SEBI Circular No. HO/24/13/12(1)2025-IMD-POD-2/I/157/2025, November 28, 2025 – https://www.sebi.gov.in/legal/circulars/nov-2025/reclassification-of-real-estate-investment-trusts-reits-as-equity-related-instruments-for-facilitating-enhanced-participation-by-mutual-funds-and-specialized-investment-funds-sifs-_98031.html

[20] SEBI Circular No. SEBI/HO/DDHS/DDHS-PoD-2/I/11698/2026, May 15, 2026 –https://www.sebi.gov.in/legal/circulars/may-2026/status-of-spvs-post-conclusion-or-termination-of-concession-agreement_101467.html

[21] SEBI Circular No. SEBI/HO/DDHS/DDHS-PoD-2/ I/11700/2026, May 15, 2026 – https://www.sebi.gov.in/legal/circulars/may-2026/permitted-use-of-fresh-borrowings-for-invits-where-net-borrowings-exceeds-forty-nine-percent-of-the-value-of-invit-assets_101465.html

[22] SEBI (Infrastructure Investment Trusts) (Amendment) Regulations, 2026 – https://www.sebi.gov.in/legal/regulations/apr-2026/securities-and-exchange-board-of-india-infrastructure-investment-trusts-amendment-regulations-2026_100970.html

[23] SEBI, Consultation Paper on amendments to SEBI (Infrastructure Investment Trusts) Regulations – https://www.sebi.gov.in/sebi_data/attachdocs/1440066429986.pdf

[24] Reserve Bank of India, ‘Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025’ –https://rbidocs.rbi.org.in/rdocs/notification/PDFs/347MD5CC21D3597C04354B67A42A1A4CB439C.PDF

[25] ibid

[26] ibid