How Do Lenders Evaluate Project Finance Proposals in India?

You have a project, a detailed project report and a funding gap. Before any bank or NBFC sanctions a project loan, it has to answer one question: can this project repay the debt from its own cash flows, even in a bad year? This guide explains how lenders evaluate project finance proposals in India, which checks are fixed by RBI and which are left to each lender, with a worked ₹100 crore example. Rules are as of October 2026.

How do lenders evaluate project finance proposals in India? The short answer

Lenders test six things, roughly in this order:

1. Is it really a project loan? Under RBI's definition, at least 51% of repayment must come from the project's own cash flows, and all lenders must sign a common agreement with the borrower.
2. Does the project work? Technology, capacity, site, market demand and cost, usually tested in a techno-economic viability (TEV) study.
3. Do the numbers repay the debt? A cash flow model, the debt service coverage ratio (DSCR) year by year, and stress cases.
4. Is the sponsor real? Track record, net worth, and equity that is committed, not promised.
5. Are the risks allocated? Construction, supply, offtake or lease contracts, insurance, approvals and a cost overrun plan.
6. Can the money be controlled? Security, escrow of project cash, and disbursement tied to progress certified by the lender's independent engineer.

Under RBI's Project Finance Directions, 2025, in force since 1 October 2025, no lender may disburse a project loan until financial closure covering at least 90% of total project cost is legally binding and the original completion date is documented.

What do the key terms mean?

Term	Plain meaning
Project finance	Funding where the project's own revenues are the main security and the main source of repayment. RBI requires at least 51% of repayment from project cash flows and a common agreement among all lenders.
Financial closure	The date when equity, debt and any grant covering at least 90% of total project cost become legally binding on everyone.
DCCO	Date of commencement of commercial operations: when the project is expected to start commercial use. For real estate, it is the expected occupancy certificate date.
TEV study	Techno-economic viability study: an independent check of technology, market, cost and financial assumptions, usually by a consultant the lender appoints.
LIE	Lender's independent engineer (or architect for real estate). Certifies construction progress before each drawdown.
DSCR	Debt service coverage ratio: cash available for debt service divided by the interest and principal due in that period.
CFADS	Cash flow available for debt service: revenue minus operating costs and taxes, before paying lenders.
D/E ratio	Debt to equity ratio. The sponsor's share of the funding.
SBCF	Standby credit facility: a credit line sanctioned at financial closure to fund cost overruns during construction.
Common agreement	One agreement between the borrower and all lenders. Loan terms can differ by lender, but the DCCO must be the same.

For the basics of the structure itself, see project finance vs corporate finance. This guide picks up where that one stops: how the proposal is tested.

The appraisal, step by step

Paragraph numbers below refer to RBI's Commercial Banks Credit Facilities Directions, 2025, which carry the project finance rules for commercial banks, unless stated otherwise.

1. Screening the proposal

The lender reads your detailed project report (DPR) and decides whether the project fits its credit policy, sector limits and appetite. RBI requires every bank's credit policy to carry specific clauses for sanctioning project finance (para 74). Expect early questions on land, approvals, the sponsor group's existing debt and how much equity is already in.

2. Technical and market viability

For larger loans, lenders often commission a TEV study. The consultant checks the technology, plant capacity and its ramp-up, site and utilities, the implementation schedule, cost of project against quotations, and demand and pricing. RBI asks banks financing infrastructure to have the expertise to appraise "technical feasibility, financial viability and bankability", with particular reference to risk analysis and sensitivity analysis (para 134(1)).

RBI makes a TEV study compulsory in only one narrow case: when the appointed date of a public private partnership (PPP) project changes before disbursement and total lender exposure is ₹100 crore or more (para 82). Everywhere else, the TEV requirement comes from the lender's own policy.

3. The cash flow model and DSCR

This is where most proposals are won or lost. The lender rebuilds your model, checks every assumption, and looks at the DSCR in each year of repayment, not just the average. Then it stresses the model: lower revenue, higher costs, a higher interest rate, a delay. Our guide to DSCR explains the ratio in detail.

RBI does not set a minimum DSCR for project loans. Each lender sets its own threshold in its credit policy. RBI does require every lender to record the project's D/E ratio, DSCR, external credit rating, economic life and capital structure in a project finance database, and to update any change within 15 days (paras 85 and 86).

4. The sponsor and the equity

Lenders look at the promoter group's track record on similar projects, its net worth, its other debt and its repayment history. They want to see equity already invested or legally committed. For infrastructure projects, RBI says the promoters' contribution should come from their own resources (para 137). Equity that arrives late is a red flag, because RBI requires disbursement to stay proportionate to the progress in equity infusion (para 83).

5. Contracts and risk allocation

In project finance, the contracts are the credit. For infrastructure projects run through a special purpose vehicle (SPV), RBI says appraisal must identify project risks, evaluate how the project contracts mitigate them, and assess whether the counterparties to those contracts can honour them (para 139). In practice, that means reading the construction (EPC), supply, offtake, lease or concession agreements, and the insurance cover. Plan for cost overruns early. RBI's Project Finance Directions link the standard treatment of cost overrun funding to a standby credit facility sanctioned at financial closure, and for infrastructure projects, overrun funding without one is priced at a premium.

6. Approvals, land and legal checks

All applicable approvals and clearances, such as environmental, legal and regulatory, must be in place before financial closure (para 78). Approvals that can only be obtained at a later milestone, such as consent to operate a boiler once it is built, are excluded (para 79). At least 75% of the land must be available before disbursement for non-PPP projects, including real estate, and 50% for PPP infrastructure (para 80).

7. Sanction, financial closure and disbursement

After the credit committee sanctions the loan, documents are signed and security is created. Money flows only after financial closure, against a project-specific disbursement schedule in the loan agreement (para 75), with each stage certified by the LIE or architect (para 83). For infrastructure loans in a consortium, RBI lets each bank refer to the lead lender's appraisal or appraise the project jointly, and asks banks to avoid multiple appraisals that cause delay (paras 139 and 143).

Lender judgement vs RBI rules: what is fixed and what is negotiable

Item	Fixed by RBI?	What the rule says (as of October 2026)	Where the lender decides
Is it project finance?	Yes	At least 51% of repayment from project cash flows, plus a common agreement among all lenders	Whether to structure your loan as project or corporate finance
Financial closure	Yes	At least 90% of total project cost legally tied up before disbursement	Which sources of equity it accepts as committed
Approvals	Yes	All applicable approvals before financial closure; milestone-linked ones later	Which approvals it treats as applicable to your project
Land	Yes	75% before disbursement (50% for PPP infrastructure)	Title and valuation checks
Tenor	Yes	Repayment tenor, including moratorium, at most 85% of the project's economic life	The actual tenor, moratorium and repayment shape
DCCO	Yes	Same date for all lenders; for real estate, the expected occupancy certificate date	How much buffer it builds into the date
Share of each lender	Yes	Up to ₹1,500 crore aggregate: at least 10% each. Above that: at least 5% or ₹150 crore, whichever is higher, until actual DCCO	Whether to join, lead or syndicate
Minimum DSCR	No	Not prescribed; lenders must record the DSCR	The threshold, the stress cases and the debt size
D/E and promoter contribution	No fixed ratio	Disbursement must track equity infusion. For residential real estate (CRE-RH), lenders may count contingent sales receivables as promoter contribution	The ratio and the timing of equity
TEV study	Only one case	Required when a PPP appointed date changes and exposure is ₹100 crore or more	Whether your loan needs one, and who does it

Sources: RBI Project Finance Directions, 2025 and Chapter VII of RBI's Commercial Banks Credit Facilities Directions, 2025.

What changed in 2026: phased projects

On 15 July 2026, RBI's Fifth Amendment to the Credit Facilities Directions for commercial banks added an explanation to para 78. If a project can be run as several independent viable units, a bank may finance each unit as a separate project with its own financial closure, provided each unit is appraised in advance for standalone viability.

For a sponsor building in phases, such as a plant with several production lines or a multi-tower development where each phase can operate on its own, this can mean you do not have to tie up 90% of the full programme's cost before the first phase is funded. The catch is the phrase "standalone viability": each phase must pass the DSCR and stress tests on its own cash flows.

Worked example: how a lender tests a ₹100 crore project

Illustrative example, assuming a ₹100 crore manufacturing expansion funded with ₹70 crore of debt and ₹30 crore of equity, a 20-year economic life, a 2-year moratorium, repayment in 10 equal annual instalments at an assumed 10% a year, and steady-state revenue of ₹45 crore against operating costs and taxes of ₹29 crore. These figures are assumptions, not loan terms.

Test	Calculation	Result
D/E ratio	₹70 crore / ₹30 crore	2.33 : 1
Financial closure floor	90% x ₹100 crore	₹90 crore must be legally binding
If only ₹15 crore of equity is committed	₹70 crore + ₹15 crore	₹85 crore: no financial closure, no disbursement
Tenor ceiling	85% x 20 years	17 years, against 12 planned (2 + 10)
Smallest share per lender in a consortium	10% x ₹70 crore	₹7 crore, so at most 10 lenders
Annual debt service	₹70 crore at 10% over 10 years	₹11.39 crore
Base DSCR	₹16 crore / ₹11.39 crore	1.40
Revenue 10% lower, costs unchanged	₹11.5 crore / ₹11.39 crore	1.01
Interest rate 1 point higher (11%)	₹16 crore / ₹11.89 crore	1.35
10% cost overrun funded 70:30	₹16 crore / ₹12.53 crore on ₹77 crore of debt	1.28
Revenue 10% lower and rate at 11%	₹11.5 crore / ₹11.89 crore	0.97

Formulas: annual debt service = debt x r / (1 - (1 + r) ^ -10). DSCR = CFADS / annual debt service. CFADS = revenue minus operating costs and taxes.

What the lender sees: the base case looks comfortable, but a 10% fall in revenue takes the DSCR to about 1.0, and a combined revenue and rate shock pushes it below 1. If the lender's own policy needed, say, a minimum DSCR of 1.30 in the base case, the most it could lend on these cash flows at 10% over 10 years is about ₹75.6 crore. The more useful fix here is not a bigger loan. It is a stronger revenue case, such as signed offtake contracts, or a cost structure that flexes with volume.

A DSCR that only clears the lender's threshold in the base case is a weak proposal. Lenders read the stress cases first.

What changes for real estate developers

Commercial real estate (CRE) and residential housing projects (CRE-RH) follow the same Directions, with four differences that matter in appraisal.

• The DCCO is the occupancy certificate date. Under RBI's Project Finance Directions, 2025, the original DCCO for CRE and CRE-RH projects is the date on which the occupancy certificate is expected. A realistic date protects you later, because a lender's decision to extend the DCCO is a credit event.
• Sales receivables can count toward promoter contribution. For CRE-RH projects, lenders may count contingent sales receivables as part of the promoters' contribution when testing financial closure.
• RERA compliance is part of the rule. The Directions say all provisions of the Real Estate (Regulation and Development) Act, 2016 must be complied with for CRE and CRE-RH projects. Lenders check registration and the designated account. See our guide to the RERA 70% escrow rule.
• Lenders hold more against CRE. As of October 2026, during construction, a commercial bank keeps a standard asset provision of 1.25% on CRE project loans, against 1.00% for CRE-RH and other projects (para 109 of RBI's IRACP Directions, 2025). On a ₹70 crore loan, that is ₹87.5 lakh for CRE against ₹70 lakh for CRE-RH.

For loan sizing on housing projects, read how much construction finance a developer can get. If your completion date is moving, read RERA extension and construction loan DCCO.

Why proposals get sent back

• Optimistic ramp-up. A plant that runs near full capacity in year one, or a project that sells out in the first quarter, without evidence.
• Equity that is promised, not committed. Without it, financial closure cannot be reached.
• Missing approvals. RBI requires applicable approvals before financial closure, so this blocks the deal outright.
• Land not in hand. Below 75% availability, a lender cannot disburse on a non-PPP project.
• No cost overrun plan. No standby credit facility and no sponsor support undertaking.
• A thin minimum DSCR. A good average can hide one weak year.
• A DCCO with no buffer. Every later change in the date becomes a credit event that all lenders must handle.

A checklist before you submit a project finance proposal

1. Show where 90% of the cost comes from. List each source of debt, equity and grant, and which are already legally binding.
2. Put the approvals schedule up front. Mark which are in hand, which are pending and which are milestone-linked.
3. Document land availability as a percentage of the total requirement, with title papers.
4. Build the model the lender will rebuild. Year-by-year DSCR, with revenue, cost, rate and delay stress cases already run.
5. Explain your equity timing. Show it matching the disbursement schedule.
6. Attach the key contracts or term sheets: construction, supply, offtake or lease, and insurance.
7. Set a DCCO you can meet, with a buffer, and ask for a standby credit facility at financial closure.
8. If the project has phases, say whether each phase can stand alone, so lenders can consider separate financial closures.

How MoneyKarma helps

MoneyKarma is a loan distribution platform for Indian businesses and real estate developers, with 90+ lenders. Not a lender. Our lending partners include public sector banks, private banks, NBFCs and financial institutions. We help sponsors and developers prepare a project finance proposal the way lenders will test it, compare project finance and corporate finance options, and coordinate with the lenders you choose. Our team responds within 24 hours on average. Every credit decision, including the DSCR threshold and the debt size, is made by the lender. See project finance and capex finance, or share your requirement.

This guide is general information, not financial, legal or tax advice. Rules change. Confirm the terms in your sanction letter and agreements, and with your lender and advisers.