From Banks to Capital Markets: Alternative Investment Funds as a Potential Pathway for Refinancing Clean Energy Debt in India

The report identifies significant barriers to capital recycling in India's renewable energy sector, noting that most project debt remains locked in banks due to an underdeveloped bond market and strict credit rating requirements. It proposes Alternative Investment Funds (AIFs) as a flexible, near-term solution to aggregate projects, enhance credit ratings, and attract institutional investors, specifically suggesting a demonstration fund sponsored by the Indian Renewable Energy Development Agency (IREDA).

• India's clean energy targets for 2030 require an estimated $450 billion in financing, with debt funding requirements accounting for $315 billion.
• Capital recycling in India is hindered by a reliance on bank lending over capital markets; in FY 2017, the corporate sector borrowed 2.7 times more from banks than from capital markets.
• A primary barrier to accessing capital markets is the mismatch between project credit ratings and investor requirements, as over 90% of bond trading in FY 17/18 was for AA and AAA rated securities, while renewable energy projects rarely exceed a BBB rating.
• The Indian credit guarantee market is underdeveloped, with high pricing (typically 200 to 300 basis points) and RBI limits that restrict bank-provided credit enhancement to 20% of the bond issue size.
• Institutional investors, such as pension funds and insurance companies, are often prohibited by regulators from investing in debt securities rated below AA, which limits the supply of long-term capital for projects with tenures exceeding 15 years.
• Most renewable energy developers lack the scale to issue bonds economically, as transaction costs are too high for small ticket sizes; only four developers accessed capital markets for debt in the two years preceding the report.
• Alternative Investment Funds (AIFs) are proposed as a flexible near-term solution because they can aggregate multiple projects to achieve scale and potentially enhance credit ratings if sponsored by an entity like IREDA.
• AIFs provide specific regulatory advantages over Infrastructure Debt Funds (IDFs) and Infrastructure Investment Trusts (InvITs), including lower sponsor commitment requirements and fewer restrictions on the types of investments.
• The report suggests that a demonstration AIF focused on renewable energy debt, particularly if led by a public agency, could build investor confidence and create a track record for replication.

APA

Singh, D., Purkayastha, D., & Shrimali, G. (2019). From Banks to Capital Markets: Alternative Investment Funds as a Potential Pathway for Refinancing Clean Energy Debt in India. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2019/07/Alternative-Investment-Funds-as-a-Potential-Pathway-for-Refinancing-Clean-Energy-Debt-in-India-1.pdf

Chicago

Singh, Divjot, Dhruba Purkayastha, and Gireesh Shrimali. From Banks to Capital Markets: Alternative Investment Funds as a Potential Pathway for Refinancing Clean Energy Debt in India. Climate Policy Initiative, 2019. https://www.climatepolicyinitiative.org/wp-content/uploads/2019/07/Alternative-Investment-Funds-as-a-Potential-Pathway-for-Refinancing-Clean-Energy-Debt-in-India-1.pdf.

Wikipedia

{{cite report |last1=Singh |first1=Divjot |last2=Purkayastha |first2=Dhruba |last3=Shrimali |first3=Gireesh |title=From Banks to Capital Markets: Alternative Investment Funds as a Potential Pathway for Refinancing Clean Energy Debt in India |publisher=Climate Policy Initiative |date=July 2019 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2019/07/Alternative-Investment-Funds-as-a-Potential-Pathway-for-Refinancing-Clean-Energy-Debt-in-India-1.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{singh2019from, author = {Singh, Divjot and Purkayastha, Dhruba and Shrimali, Gireesh}, title = {{From Banks to Capital Markets: Alternative Investment Funds as a Potential Pathway for Refinancing Clean Energy Debt in India}}, institution = {Climate Policy Initiative}, year = {2019}, month = jul, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2019/07/Alternative-Investment-Funds-as-a-Potential-Pathway-for-Refinancing-Clean-Energy-Debt-in-India-1.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }