Housing and urban infrastructure financier HUDCO is planning to introduce social impact bonds later this year as part of efforts to diversify its funding sources and support projects with measurable social benefits, according to a report by Moneycontrol.
The state-owned institution is looking beyond traditional borrowing channels and aims to strengthen its role in municipal finance while supporting a growing pipeline of urban infrastructure projects across Indian states.
Chairman and Managing Director Sanjay Kulshrestha said HUDCO is considering social impact bonds instead of focusing only on green bonds, as a significant portion of its lending is directed towards social sector projects.
The company has previously undertaken social bank loans from Japan and now plans to tap international investors interested in financing projects with positive social outcomes.
Social Impact Bonds are outcome-based financial instruments where initial funding is provided for a social programme, while returns are linked to achieving specific predefined social targets.
HUDCO is expected to conduct investor roadshows during the second half of the year, with the US emerging as a key market due to its strong demand for impact-focused investments.
However, the final decision will depend on the cost competitiveness of such borrowings, especially for dollar-denominated instruments.
The company is also leveraging the Reserve Bank of India’s foreign exchange swap facility to make overseas borrowing more attractive.
HUDCO has already arranged around $1 billion in foreign currency funding and expects this amount to increase further by December.
Kulshrestha said the company currently relies heavily on yen-denominated loans because of their cost advantage.
However, RBI’s forex swap mechanism has improved the feasibility of dollar borrowing, with HUDCO bearing only around 1.5% of the overall hedging cost.
HUDCO’s loan portfolio has grown significantly over the last two-and-a-half years, increasing from nearly Rs 80,000 crore to Rs 1.6 lakh crore. The company now aims to double its loan book again to around Rs 3 lakh crore by 2030.
The company disbursed nearly Rs 52,000 crore last year and has set a target of Rs 60,000-65,000 crore for the current year, representing growth of about 25%.
The expansion comes amid rising demand for urban infrastructure financing, driven by initiatives such as the Urban Challenge Fund and increasing requirements for climate-resilient infrastructure, satellite towns, tourism projects and municipal development.
Kulshrestha said states are identifying a large number of bankable projects, creating significant opportunities for infrastructure financing in the coming years.