Lok Sabha Question No. 3311 (UNSTARRED), answered on 2026-03-12
Subject: New Urban Challenge Fund for Infrastructure Development in Metro Cities
Ministry: HOUSING AND URBAN AFFAIRS
Asked by: Shri Suresh Kumar Shetkar, Shri Vijayakumar Alias Vijay Vasanth

## GOVERNMENT OF INDIA

## MINISTRY OF HOUSING AND URBAN AFFAIRS LOK SABHA

## UNSTARRED QUESTION NO. 3311

TO BE ANSWERED ON MARCH 12, 2026

## NEW URBAN CHALLENGE FUND FOR INFRASTRUCTURE DEVELOPMENT

## IN METRO CITIES

NO. 3311.

SHRI SURESH KUMAR SHETKAR: SHRI VIJAYAKUMAR ALIAS VIJAY VASANTH:

Will the Minister of HOUSING AND URBAN AFFAIRS be pleased to state:

- (a) whether a New Urban Challenge Fund (UCF) has been proposed to mobilise market-based  financing  for  infrastructure  development  in  metropolitan cities across the country and if so, the details thereof;
- (b) whether  the  objectives  of  UCF  include  strengthening  urban  transport, water  supply,  sanitation  and  sustainable  infrastructure  in  metropolitan regions and if so, the details thereof;
- (c) the total financial outlay proposed under UCF  and  the expected
- contribution from private and institutional investors;
- (d) whether eligibility criteria have been framed for selection of metro cities and urban local bodies under the scheme and if so, the details thereof along with the selection methodology adopted for the purpose;
- (e) whether smaller Tier-2 and Tier-3 cities would also be eligible under UCF and if so, the details thereof along with the allocation framework; and
- (f) whether the UCF aims to encourage public-private partnerships for urban infrastructure  creation  and  if  so,  the  details  thereof  along  with  the incentives proposed for private participation?

## ANSWER

## THE MINISTER OF STATE IN THE MINISTRY OF HOUSING AND URBAN AFFAIRS (SHRI TOKHAN SAHU)

(a) to (f): Government, in the Budget 2025-26,  has announced setting up of an Urban Challenge Fund (UCF) of ₹1 lakh crore . This fund supports and strengthens  urban  infrastructure  through  implementation  of  projects under three verticals namely 'Cities as Growth Hubs', 'Creative Redevelopment of Cities' and 'Water and Sanitation'. UCF finances up to 25 per cent of the cost of bankable projects with a stipulation that at least 50  per  cent  of  the  cost  is  funded  from  bonds,  bank  loans,  and  PublicPrivate  Partnership  (PPP).  Cabinet  has  granted  approval  for  UCF  on  13 February, 2026.

## Following cities are covered under UCF:

- i. All cities with a current population of 10 lakh or more and all State/ UT capitals;
- ii. Major industrial cities (Manufacturing & Services) with a current population of 1 lakh or more; and
- iii. All Urban Local Bodies (ULBs) in Hilly and Northeastern States/ UTs and, smaller  ULBs,  including  Tier-2  &  Tier-3  cities,  with  population  below 1,00,000 in other States/ UTs.

Further, in order to facilitate access to market finance for smaller ULBs  including  Tier-2  &  Tier-3  cities,  a  Credit  Repayment  Guarantee Scheme with a corpus of ₹5,000 crore has been approved for all ULBs of North-eastern & Hilly States/UTs and smaller ULBs (<1,00,000 population) in  other  States/  UTs.  Under  this  sub  scheme,  in  addition  to  the  Central Assistance for UCF projects, Central guarantee for the loans availed by the ULBs for projects will be provided. The guarantee will be of up to ₹7 crore or 70 per cent of the loan amount (whichever is lower) for first -time loans and, ₹7 crore or 50 per cent of the loan amount (whichever is lower) for subsequent loans .

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