Lok Sabha Question No. 557 (STARRED), answered on 2026-04-02
Subject: Expansion of Urban Challenge Fund
Ministry: HOUSING AND URBAN AFFAIRS
Asked by: Smt. Bharti Pardhi, Shri Naresh Ganpat Mhaske

## GOVERNMENT OF INDIA MINISTRY OF HOUSING AND URBAN AFFAIRS

## LOK SABHA

## STARRED QUESTION NO. 557 TO BE ANSWERED ON APRIL 02, 2026

## EXPANSION OF URBAN CHALLENGE FUND

## NO. 557.    SMT. BHARTI PARDHI:

SHRI NARESH GANPAT MHASKE:

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

- (a) whether the Government has considered establishing or expanding an Urban Challenge Fund to address rising indebtedness and financing constraints faced by cities particularly in Madhya Pradesh, Maharashtra and Uttar Pradesh, if so, the details thereof;
- (b) the  objectives  of  such  a  fund  in  mobilising  risk  capital,  leveraging private investment and enhancing municipal project financing;
- (c) whether any assessments have been made on the debt burdens of urban  local  bodies  and  related  creditworthiness  issues,  if  so,  the details thereof and if not, the reasons therefor;
- (d) the  details  of  the  monitoring  and  risk-management  frameworks envisaged for such financing instruments; and
- (e) the measures planned to ensure fiscally sustainable, citizen-centric urban development  and  infrastructure  growth  amidst  mounting financial pressures?

## ANSWER

THE MINISTER OF HOUSING AND URBAN AFFAIRS

(SHRI MANOHAR LAL)

- (a) to (e): A Statement is laid in the Table of the House.

STATEMENT REFERRED TO IN REPLY TO PART (a)  TO  (e)  OF  STARRED QUESTION NO. 557 DUE FOR ANSWER IN THE LOK SABHA ON APRIL 02, 2026 REGARDING 'EXPANSION OF URBAN CHALLENGE FUND'

(a) & (b): The  Government  of  India  has  approved  the  Urban  Challenge Fund (UCF) on 13th February, 2026 for Urban Local Bodies (ULBs) in the country including for the ULBs of Madhya Pradesh, Maharashtra and Uttar Pradesh. This fund supports the development and strengthening of urban infrastructure  through  implementation  of  transformative  and  impactful projects under three verticals namely 'Cities as Growth Hubs', 'Creative Redevelopment of Cities' and 'Water and Sanitation'. UCF finances up to 25 percent of the cost of bankable projects with a stipulation that at least 50 percent of the cost is funded from bonds, bank loans, and Public-Private Partnership (PPP). Detailed guidelines for the UCF are under preparation. (c) to (e): Under UCF, in order to improve the creditworthiness of smaller ULBs  and  to  facilitate  access  to  market  finance,  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  scheme,  in  addition  to  the Central Assistance for the UCF projects, Central government will provide the  guarantee of  up  to  ₹7  crore  or  70  per  cent  of  the  loan  amount (whichever is lower) for firsttime loans and, ₹7 crore or 50 per cent of the loan amount (whichever is lower) for subsequent loans availed by the ULBs.

UCF  adopts  a  financing  approach  wherein  a  significant  share  of project  cost  is  mobilised  through  market-based  instruments  such  as municipal bonds, bank loans and PPPs. These  provisions  promote accountability and efficient project structuring, thereby embedding financial discipline, oversight and risk assessment in project selection and implementation.  The  focus  on  sectors  such  as  water  and  sanitation, redevelopment  of  city  areas  and  growth-oriented  infrastructure  aligns investments with improved service delivery and urban productivity. Earlier, under Atal Mission for Rejuvenation and Urban Transformation (AMRUT), credit ratings exercise was conducted in 468 cities during the period 2015 to 2018. Of these, 162 cities achieved an investment-grade rating, including 34 cities that secured a rating of A- and above. Further, since the year 2017, ₹6,540.44 crore has been raised through municipal bonds by 23 ULBs namely Agra, Ahmedabad, Amravati, Bhopal, Bhavnagar,  Chennai,  Coimbatore,  Gandhinagar,  Ghaziabad,  Hyderabad, Indore,  Lucknow,  Nashik,  Prayagraj,  Pimpri  -  Chinchwad,  Pune,  Rajkot, Surat,  Tiruchirappalli,  Tiruppur,  Vadodara,  Varanasi  and  Visakhapatnam. Total ₹ 377.33 crore have been released under AMRUT as incentive to these ULBs for bond issuance.

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