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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 first-time 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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