Budget proposes infrastructure risk guarantee fund to ease project funding

New Delhi: Finance minister Nirmala Sitharaman on Sunday announced setting up of an infrastructure risk guarantee fund to ease financing bottlenecks and revive stalled projects.

Announcing the budget proposals for 2026-27, Sitaraman said the fund would provide partial credit guarantee for loans being extended for infrastructure projects allowing easier banking credit.

Mint had reported on 29 December about a government plan for an infrastructure risk guarantee fund likely to be announced in the budget.

The proposed fund may be set up on the lines of credit guarantee schemes for small businesses.

The proposal on the fund was submitted to the finance ministry by a committee formed under the National Bank for Financing Infrastructure and Development (NaBFID).

The National Credit Guarantee Trustee Co. (NCGTC) is likely to underwrite development risks for infrastructure projects, allowing banks and financial institutions to lend on easier terms.

The move comes amid rising project delays, cost overruns and higher borrowing costs, which have long constrained investment flows into India's infrastructure sector.

Government estimates suggest India needs roughly $2.2 trillion in infrastructure investment by 2030 to meet its $7 trillion growth ambition.

The risk guarantee fund would cover a portion of loans extended by banks and financial institutions to infrastructure projects for a nominal fee. This would reduce financing risk, enable higher credit flow and allow lenders to take larger exposures. While the guarantee cost would be added to the borrowing costs, the impact on lending rates is expected to be minimal.