The National Housing Bank (NHB) on Sunday said it has operationalised the ₹10,000-crore Urban Infrastructure Development Fund (UIDF) announced in this year’s Budget for creation of urban infrastructure in tier-2 and tier-3 cities.

The initial corpus for this fund — managed by NHB— is ₹10,000 crore. UIDF has been launched to supplement efforts of the State governments by providing stable and predictable source of finance for creation of urban infrastructure in tier-2 and tier-3 cities.

As many as 459 tier-2 cities with population of 50,000 to less than a lakh and 580 tier-3 cities with population of one lakh to less than a million as per 2011 census are being covered under UDIF as of now.

It maybe recalled that Union Finance Minister Nirmala Sitharaman had in her budget speech this year announced setting up of the UIDF through use of priority sector lending shortfall for creation of urban infrastructure in tier 2 and tier 3 cities.

Interest rate on UIDF loans has been kept at bank rate minus 1.5 percent i.e., 5.25 percent at present. 

The loan (principal) will be repayable in five equal annual instalments within seven years from the date of withdrawal, including a moratorium period of two years while interest will be payable on quarterly basis.

Eligible projects

Focus will be on basic services like sewerage and solid waste management, water supply and sanitation, construction and improvement of drains/storm water drains, etc. and impact-oriented projects would be prioritised.

The minimum size and maximum size of the project proposal shall be ₹5 crores (₹ 1 crore for northeast & hilly States) and ₹ 100 crore respectively.

The list of activities eligible under UIDF include Water supply network (new/augmentation/rehabilitation); construction and improvement of drains/storm water drains; sewerage network (new/augmentation/rehabilitation); sewage treatment plants – secondary/tertiary treatment; comprehensive projects of pay and use toilets, operated, and managed by private sector; Solid Waste Processing Plants (new/augmentation); comprehensive development of land reclaimed from legacy dumpsite remediation; Roads (excluding maintenance works), within area development projects with provision for all utilities to be taken through an underground conduit; over bridges, grade separators, underpasses; electric/gas crematorium; comprehensive area development projects; local area plan for de-congestion; heritage conservation; transit oriented development for creating dense, mixed-use developments near public transportation; 

Town planning schemes for greenfield development and parks with open gym not involving major construction work.

The fund shall not be utilised for any type of maintenance works or for administrative/establishment expenses. 

Further, housing, power and telecom, rolling stock like buses and trams, urban transport, health and education institutions would remain out of the purview of UIDF.

Both new and ongoing projects are eligible to access UIDF and shall be aligned to the various urban missions and programmes of Government of India, NHB has said.

Fund allocation

For wider coverage and maximisation of benefit of these low cost funds, States have been advised to leverage resources from the grants of the 15th Finance Commission, as well as existing schemes, and to adopt appropriate user charges while accessing the UIDF. 

The normative allocation of first tranche of ₹ 10,000 crore under UIDF for 2023-24 has been advised by NHB to States and UTs inviting project proposals under the Fund. 

Allocation has been done based on the urban population percentage in respective States/ UTs in the eligible towns/cities out of total population in eligible town/cities in the country.

Finance Department of States/ UTs have been designated as the nodal department for implementation of the fund while NHB is operationalising the fund through their regional offices spread across the country.