Below is an overview of major challenges under each category: 

Regulatory and Policy Uncertainties: Infrastructure projects often endure delays due to  lengthy approvals, changing policies, and regulatory hurdles. Frequent changes in government  policies or tariff regulations can affect project viability. For example, complex approval processes and  shifting guidelines have historically slowed projects, adding uncertainty for investors. Delays in  securing various clearances or changes in contract terms increase risk for lenders and sponsors.  A unified, consistent policy environment is needed to instill confidence in project financing. 

Land Acquisition and Environmental Clearances: Acquiring land for large projects in India is  notoriously challenging. Legal disputes, rehabilitation of affected people, and compliance with  the Land Acquisition Act can significantly delay projects. Environmental clearances similarly  involve protracted processes and the risk of public-interest litigation. These issues not only  postpone the start of projects but also escalate costs. Indeed, land acquisition challenges and  clearance delays are a significant source of cost overruns in Indian projects. 

Financial Risks (Interest Rate, Currency, High Capital Intensity): Infrastructure projects are  highly capital-intensive with long gestation periods. They typically rely on heavy debt financing,  which exposes them to interest rate risk. If interest rates rise during the project term (as seen  with recent spikes in global rates), the cost of debt servicing increases and can squeeze project  cash flows. Many Indian projects also have some foreign currency debt or imported equipment,  introducing currency exchange risk – rupee depreciation can inflate costs of repayment or  procurement. Moreover, the mismatch between long-term project cash flows and shorter-term  funding sources can create asset-liability mismatches for banks. High leverage means projects  are sensitive to financial market conditions. 

Operational Risks (Execution and Supply Chain): Execution challenges are a major risk  during construction. Large projects can face delays caused by contractor issues, poor  project management, or supply chain disruptions (for instance, shortages of materials or  equipment delays, as seen during the COVID-19 lockdowns). Such delays often lead to cost  overruns. Breaches of contract by contractors or changes in scope can further complicate  execution. Additionally, infrastructure projects often depend on timely completion of  interconnected projects (e.g. a power plant needs transmission lines) – a delay in one can hinder  others. These operational complexities require robust project management to mitigate risks. 

Market Risks (Demand and Revenue Variations): Once operational, projects face market or  off-take risk. Revenues may fall short of projections if demand is lower than expected or if users  are unwilling to pay anticipated tariffs. For example, toll road projects sometimes  overestimate traffic volumes; if actual traffic is low, toll revenues will be insufficient to  service debt. Power projects face off-take risk if distribution companies (DISCOMs) curtail  purchases or if tariffs are not cost-reflective. These demand variations directly impact the project  SPV’s cash flow. Lenders therefore pay close attention to revenue risk allocation – e.g. requiring  minimum traffic guarantees in road concessions or power purchase agreements (PPAs) with  creditworthy utilities. If market risks are not well mitigated, projects can struggle to meet debt  obligations. In summary, Indian project finance deals with high upfront costs and long timelines that expose  them to policy shifts and economic swings.  

As RBI Deputy Governor M. Rajeshwar Rao noted,
“High sunk costs, coupled with long gestation periods, further complicate financing of infrastructure projects and lead to asset–liability  mismatches. Delays in approvals, clearances, land acquisition challenges, and breaches of  agreements also add to the risks of project financing, causing cost overruns."

These factors make lenders cautious, often demanding strong risk mitigation measures or government  support to bank a project. 

DCCO (Date of Commencement of Commercial Operations) and  Its Impact 

Date of Commencement of Commercial Operations (DCCO) is a crucial milestone in project  financing. It refers to the scheduled date when a project is expected to start commercial operations (i.e.  begin generating revenue). Banks set a DCCO at the time of loan sanction/financial closure for every  project loan. This date is significant because it underpins loan repayment schedules and regulatory  asset classification: Definition and Significance: DCCO marks the point when a project transitions from  construction to operation, and revenue generation begins. In essence, it’s the deadline by which  the project should be up and running. The DCCO is used by lenders to design repayment terms  (often loans have a moratorium on principal until DCCO) and to monitor progress. It is also a  reference for assessing whether a project is on schedule or facing delays. A clear DCCO helps  banks closely monitor the project’s progress and take timely action if there are delays or  cost overruns, thus managing their exposure.

RBI Guidelines on DCCO Extensions: Recognizing that projects can be delayed for legitimate  reasons, the Reserve Bank of India has specific guidelines allowing extension of DCCO without  immediately classifying the loan as non-performing, provided certain conditions are met. For  infrastructure projects, banks are permitted to extend the DCCO by up to 2 years (and up  to 1 year for commercial real estate and other non-infra projects) without downgrading  the asset’s classification, so long as the project’s viability is reassessed and the terms of the  loan remain largely unchanged . In other words, a one-time delay of up to 2 years in an  infrastructure project’s commencement can be accommodated. During such extension, the loan  can continue to be treated as a “standard” (performing) asset if it continues to meet interest  payments as restructured. RBI requires that when granting a DCCO extension, banks must  satisfy themselves of the project’s continued viability and ensure that a credible restructuring  plan is in place. It’s important to note that any extension of DCCO is treated as a restructuring  of the loan (even if other terms are unchanged), and hence banks need to follow the prudential  norms for restructured accounts. 

Impact on Loan Classification and NPAs: If a project fails to commence operations by the  stipulated DCCO (and no permitted extension or restructuring is in place), the loan is at risk of  being classified as a Non-Performing Asset (NPA). RBI’s income recognition and asset classification norms tie classification to DCCO for project loans. A project loan will be  classified as an NPA if the project is not started within a certain period of the DCCO, even  if payments were being met during construction, unless restructured as per RBI guidelines. For  instance, for infrastructure loans, if commercial operations have not begun within 2 years of the  original DCCO, the account must be classified as NPA (absent a formally approved extension  and restructuring). The regulatory rationale is that a project not generating cash flow by that time  is in serious trouble, so its debt should no longer be treated as a standard asset. Delays in DCCO  therefore directly affect banks’ provisioning requirements and trigger the need for loan  restructuring. Banks often proactively restructure project loans if a significant delay is anticipated  – by extending DCCO and revising the repayment schedule – to prevent a hard NPA  classification. Under RBI’s rules, if such restructuring (including DCCO extension) is done within  the allowed time window and the project is deemed viable, the loan can continue as a standard  asset. However, if delays go beyond the allowed extension (beyond 2 years for infra, 1  year for others), the loan will likely be downgraded to NPA, forcing the lender to make higher  provisions. 


In summary, DCCO is a pivotal reference date in project finance. It dictates when loan repayments  should start and serves as a benchmark for performance. RBI allows some flexibility in extending this  date to accommodate genuine delays, without immediately branding the loan as an NPA, but such  forbearance is conditional and time bound. If a project overshoots the revised DCCO, banks must  classify the loan as NPA and may have to pursue resolution under insolvency or other restructuring  frameworks. Thus, from a financing perspective, timely achievement of DCCO is critical – it means  the project is operational and generating cash, which is essential for servicing debt. Conversely, a  significantly delayed DCCO is often an early warning of distress, prompting remedial actions by lenders.