Construction finance for real estate developers in India is primarily arranged through NBFCs, Category II AIFs, and private credit funds — not through commercial banks, which face regulatory capital constraints and exposure limits that make construction-stage lending difficult at scale. A developer seeking ₹30 crore to ₹200 crore for mid-stage residential construction will find that the right lender is almost certainly a private credit fund or a specialist NBFC, not their primary bank — and that accessing these lenders efficiently requires either direct relationships or a debt advisory firm that has placed paper with them before.
India faces a $15-20 billion funding shortfall in mid-stage residential construction, according to Sundaram Alternates data. The capital exists. The challenge is that most developers do not know how to access it efficiently.
Why banks are structurally limited in construction lending
Under Basel III capital adequacy norms, construction-stage real estate lending attracts higher capital provisioning requirements than equivalent secured corporate lending. For a bank managing its capital ratios, this makes construction finance less attractive from a return-on-equity perspective than comparable lending to an established corporate borrower.
Banks also face regulatory single-borrower and group exposure limits — their total exposure to any single developer group across all facilities cannot exceed defined thresholds. Developers who have already borrowed significantly from their primary bank for land or earlier project phases may find that their bank has hit its exposure limit, regardless of the new project's quality.
The result is a structural gap: the most active construction phase of a project — when cash requirements are highest and the developer most needs capital — is the phase that banks are least able to fund.
How private credit fills the gap
Category II AIFs — private credit funds regulated by SEBI — have emerged as the most active construction finance providers in India's private credit market. Real estate accounted for 42% of private credit deal value in the second half of 2025. These funds are explicitly designed to take on construction-stage risk that regulated lenders cannot accommodate.
The mechanics differ from bank lending in important ways. AIF construction finance is typically structured as a non-convertible debenture or a structured term facility — not a standard term loan. The security package is more comprehensive: mortgage over the project land, assignment of receivables from customer collections, escrow of all project cash flows, and in most cases a personal guarantee from the promoter.
Crucially, AIFs can structure the repayment to align with project cash flows rather than imposing a fixed repayment schedule. A typical AIF construction facility for a residential project might have a 12-18 month moratorium while construction is in progress, with repayment linked to customer collection milestones — a structure that banks almost never offer.
What the credit package must include
Developers approaching private credit for construction finance need to arrive with a complete credit package, not a project teaser. The credit package that moves through AIF due diligence efficiently includes:
A project information memorandum covering the project overview, location analysis, regulatory approvals obtained, RERA registration, construction timeline, and sales plan. Every approval must be documented — title clear report, environmental clearance, building plan sanction, and any sector-specific permits.
A financial model projecting project cash flows from construction spend through completion and collection — with assumptions clearly stated and benchmarked against comparable projects in the micro-market. The model should show debt service coverage under a stressed scenario as well as a base case.
A developer information memorandum covering the track record of every prior project — area, type, delivery date, sold percentage, collections as of date, and RERA compliance status. Clean track records compress due diligence timelines significantly.
A proposed security structure — what land is available to mortgage, what receivables will flow through escrow, and what personal guarantee the promoter is prepared to offer.
Developers who arrive with this package in professional format close construction finance 30-60 days faster than those who provide the same information piecemeal.
The specialist segments where private credit is the only practical route
Senior living and retirement housing, and holiday home or second-home developments, are two segments where private credit is not just the preferred route — it is often the only practical one. Both sectors have strong structural demand and genuine project viability, but conventional lenders have neither the sector expertise to underwrite them nor the mandate flexibility to accommodate their specific cash flow profiles. Private credit funds with sector experience have stepped in actively.
For developers in these segments, the lender identification and approach process requires a specific network that goes beyond standard NBFC relationships.
Eone Capital arranges construction finance and project debt for real estate developers across India. Ticket sizes ₹30 crore and above.
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