**Executive Summary**
The Union Cabinet has approved the Urban Challenge Fund (UCF) with a Central Assistance of Rs. One lakh crore. The fund aims to drive market-led urban transformation by leveraging market finance and private participation to build resilient and climate-responsive cities. The fund will operate from FY 2025-26 to FY 2030-31, with a possible extension to FY 2033-34.
**Key Points / Main Content**
* **Fund Overview:**
* Total Central Assistance of Rs. One lakh crore (25% of project cost) is contingent on raising a minimum of 50% of the project cost from market sources.
* This investment should result in Rs. Four lakh crore to be invested in the urban sector over the next five years.
* Fund will build resilient, productive, inclusive and climate-responsive cities.
* **Salient Features of UCF:**
* Minimum 50% of project financing must be mobilized from market sources.
* Projects will be selected through a transparent and competitive challenge mode.
* Strong focus on reforms across Urban Governance, Market & Financial systems, Operational efficiency, and Urban Planning.
* Private sector participation will be encouraged.
* A dedicated ₹5,000 crore corpus will enhance the creditworthiness of 4223 cities including Tier- II and Tier-III cities.
* Positioning ULBs as Bankable Asset Class.
* **Credit Repayment Guarantee for Smaller Cities:**
* A Credit Repayment Guarantee Scheme of ₹5,000 crore has been approved for smaller ULBs.
* Provides a Central guarantee of up to ₹7 crore or 70% of the loan amount (whichever is lower) for first-time loans.
* Supports projects of minimum Rs.20 crore for the first time and Rs.28 crore for subsequent projects in smaller cities.
* **Project Selection and Verticals:**
* Projects selected through a challenge-based framework focusing on transformative impact, sustainability, and reform orientation.
* Fund is linked to reforms, milestones, and clearly defined outcomes.
* Project Verticals include Cities as Growth Hubs, Creative Redevelopment of Cities, and Water and Sanitation.
* **Coverage:**
* All cities with a population of 10 lakh or more (2025 estimates)
* All State and Union Territory capitals not covered above
* Major industrial cities with a population of 1 lakh or more.
* All ULBs in hilly States, North-Eastern States, and smaller ULBs with population below 1 lakh will be eligible for support under the Credit Repayment Guarantee Scheme.
* **Reform-Linked Funding Framework:**
* Governance and digital reforms
* Market and financial reforms to strengthen creditworthiness
* Operational reforms for improved service delivery and utility efficiency
* Urban planning and spatial reforms, including transit-oriented development and green infrastructure
* Project-specific reforms with defined Key Performance Indicators (KPIs)
* **Outcome Orientation:**
* Projects evaluated on ability to deliver transformative outcomes- economic, social and climate.
* Expected to catalyse large-scale private investment, strengthen urban governance, and accelerate the creation of future-ready cities.
**Impact Analysis**
**States, Union Territories (UTs), and Urban Local Bodies (ULBs)**
* **Impact:** They are key stakeholders contributing to project financing, governance and implementation.
* **Action Required:** Raise a minimum of 50% of project financing from market sources, participate in the competitive challenge mode, and implement reforms across urban governance and related systems.
**Citizens**
* **Impact:** Will experience improvements in urban infrastructure and quality of life through citizen-centric reforms.
* **Action Required:** None mentioned.
**Private Sector**
* **Impact:** Encouraged to participate through structured risk-sharing frameworks, increased opportunities for investment and development in the urban sector.
* **Action Required:** None mentioned.
Key Entities Referenced
Urban Challenge Fund (UCF): A government scheme to provide Central Assistance (CA) for urban development projects with the goal of market-led infrastructure creation.
Credit Repayment Guarantee Scheme: A scheme to facilitate first-time access to market finance for smaller cities/ULBs by providing a central guarantee on loans.
Ministry of Housing and Urban Affairs: The ministry overseeing the implementation and monitoring of the Urban Challenge Fund and its associated reforms.
Urban Local Bodies (ULBs): Local governing bodies in cities and towns that are eligible for funding under the Urban Challenge Fund.
Cabinet
Cabinet approves Rs. One Lakh Crore Urban
Challenge Fund to Drive Market-Led Urban
Transformation
Posted On: 14 FEB 2026 1:09PM by PIB Delhi
The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, yesterday approved the launch of
the Urban Challenge Fund (UCF) with a total Central Assistance (CA) of Rs. One lakh crore. CA will
cover 25% of the project cost, subject to raising minimum 50% of the project cost from market. This will
lead to a total investment of Rs. Four lakh crore in urban sector in next five years, marking a paradigm
shift in India’s urban development approach from grant- based financing to market-linked, reform-driven
and outcome-oriented infrastructure creation.
The Urban Challenge Fund will leverage market finance, private participation and citizen- centric reforms
for delivery of high-quality urban infrastructure. The Fund aims to build resilient, productive, inclusive
and climate-responsive cities, positioning those as key driver of the country’s next phase of economic
growth.
The Fund will be operational from FY 2025–26 to FY 2030–31, with an extendable implementation period
up to FY 2033–34. It gives effect to the Government’s vision announced in Budget 2025–26 to implement
proposals relating to Cities as Growth Hubs, Creative Redevelopment of Cities, and Water and Sanitation.
Salient Features of the Urban Challenge Fund:
i. A minimum of 50 per cent of project financing have to be mobilised from market sources, including
municipal bonds, bank loans and Public–Private Partnerships (PPPs). The remaining share may be
contributed by States, Union Territories (UTs), Urban Local Bodies (ULBs) or other sources.
ii. Projects will be selected through a transparent and competitive challenge mode, ensuring support to
high-impact and reform-oriented proposals.
iii. There will be a strong thrust on reforms across Urban Governance, Market & Financial systems,
Operational efficiency, and Urban Planning
iv. Private sector participation will be encouraged through structured risk-sharing frameworks and
benchmarking of service delivery standards
v. A dedicated ₹5,000 crore corpus will enhance the creditworthiness of 4223 cities including Tier- II
and Tier-III cities, particularly for first-time access to market finance.
vi. Positioning ULBs as Bankable Asset Class.
Credit Repayment Guarantee for Smaller Cities:
In order to facilitate first-time access to market finance for all Cities/ULBs in Northeastern & Hilly States
and smaller ULBs (<1,00,000 population) in other States/UTs, a Credit Repayment Guarantee Scheme of
₹5,000 crore has been approved. The scheme will provide a Central guarantee of up to ₹7 crore or 70 per
cent of the loan amount (whichever is lower) for first-time loans. On successful repayment of first loan,central guarantee of ₹7 crore or 50 per cent of the loan amount (whichever is lower) will be provided. This
will effectively support projects of minimum Rs.20 crore for the first time and Rs.28 crore for subsequent
projects in smaller cities.
Challenge-Based Project Selection:
Projects under the Fund will be selected through a challenge-based framework including transformative
impact, sustainability & reform orientation. Funding will be linked to reforms, milestones and clearly
defined outcomes. Continuation of reforms will be a prerequisite for further fund release. Paperless
monitoring of projects and reforms will be facilitated through a single digital portal of the Ministry of
Housing and Urban Affairs.
Project Verticals:
Cities as Growth Hubs, identification of city regions, important economic nodes, integrated spatial
economic & transit planning - including greenfield and semi-greenfield developments, and development
along transit and economic corridors, urban mobility, critical infrastructure projects to enhance economic
competitiveness;
Creative Redevelopment of Cities, covering renewal of central business districts and heritage cores,
brownfield regeneration, Transit Oriented Development and retrofitting of legacy infrastructure, Climate
resilience, disaster mitigation and countermagnets to decongest the existing cities in Northeastern & Hilly
States; and
Water and Sanitation, including upgradation of water supply, sewerage and stormwater systems, Rurban
infrastructure, water grids and integrated solid waste management, including legacy waste remediation,
focusing on swachhata.
Coverage:
The Fund will cover:
All cities with a population of 10 lakh or more (2025 estimates);
All State and Union Territory capitals not covered above; and
Major industrial cities with a population of 1 lakh or more.
Additionally, all ULBs in hilly States, North-Eastern States, and smaller ULBs with population below 1
lakh will be eligible for support under the Credit Repayment Guarantee Scheme. In principle all cities will
be covered under UCF
Reform-Linked Funding Framework:
Funding under the Urban Challenge Fund is anchored to a comprehensive reform agenda covering:
Governance and digital reforms;
Market and financial reforms to strengthen creditworthiness;
Operational reforms for improved service delivery and utility efficiency;
Urban planning and spatial reforms, including transit-oriented development and green infrastructure; and
Project-specific reforms with defined Key Performance Indicators (KPIs), third-party verification and
sustainable Operation & Maintenance mechanisms.
Outcome Orientation:
i. Projects will be evaluated on their ability to deliver transformative outcomes- economic, social and
climate, including revenue mobilization, private investment, job creation and, improved safety,
inclusiveness, service equity and cleanliness.ii. The Urban Challenge Fund is expected to catalyse large-scale private investment, strengthen urban
governance, and accelerate the creation of future-ready cities aligned with national development
priorities.
LINK TO FREQUENTLY ASKED QUESTIONS ON URBAN CHALLENGE FUND
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