Capex Term Loan Funding
A capex term loan funds plant, machinery and capacity expansion on a running unit, repaid from what the expansion earns. The date you commit to commissioning it is a regulatory milestone, not a target. Credit Core Finance structures and appraises capex facilities from ₹25 Cr to ₹500 Cr, pan-India, through a leading private bank's structured desk.
What a Capex Term Loan Actually Funds
A capex facility covers the complete cost of bringing an expanded line into active production on an existing site. In a well-built credit file, this includes the primary plant and machinery, whether sourced domestically or imported. For imported units, the file accounts for landed cost, freight, customs clearance, transit insurance and technical installation. It also includes the civil foundations, electrical work and utility connections required on site before the equipment can operate.
The appraisal looks at what the line costs to build and what it costs to run. Sizing must include the additional working capital the unit consumes the day it starts production. Raw materials, power and labour must be funded before the first expanded batch turns into collections. Sizing an asset while ignoring the operating cash it demands creates strain immediately after commissioning. Repayment capacity is calculated on the incremental cash the new capacity generates, supported by verifiable unit margins.
Why Capex Files Are Read Differently
Working capital facilities support a business cycle that already turns and collects. A capex facility funds a cycle that does not exist yet.
Because of this distinction, credit desks evaluate a capex file forward rather than backward. The desk checks what the additional capacity will produce, which customers have committed to buy that output, and how the incremental gross margin will look after variable costs. The appraisal runs sensitivity checks against delay, testing whether cash flows still service debt if capacity utilisation builds slower than planned.
The second difference is the commitment horizon. Working capital lines renew annually against recent performance. Capex facilities commit funds over several financial years against forward estimates. Credit committees therefore test projected volumes against the promoter's demonstrated record of project execution. The credibility of the file does not depend on the scale of the expansion; it depends on the documentary evidence supporting the estimates.
The Commissioning Date Is Not a Target
The date of commencement of commercial operations is the single most consequential number in a capex file, and most borrowers treat it as a project-management target. It is not. Under the RBI framework effective 1-Oct-2025, the original DCCO is the date envisaged at financial closure by which the project is expected to be put to commercial use, and it must be documented before disbursement. Every lender to the project carries the same DCCO; a consortium cannot run different commissioning dates for the same asset.
What follows from that date is what borrowers rarely see coming. The need to extend DCCO, and the expiry of the original or extended DCCO, are each defined as credit events in their own right. No instalment has to be missed. The moment the lender concludes the date will slip, the account enters the project-resolution process.
What Happens When Commissioning Slips (3y / 2y Boundary)
Slippage is not automatically fatal, and the boundary is precise. A standard account may retain standard classification where DCCO is deferred within the permitted window measured from the original DCCO: up to three years for infrastructure projects, and up to two years for non-infrastructure projects, including commercial real estate. The market shorthand that every project gets two years is wrong in both directions.
The accommodation is conditional, not automatic. The resolution plan must conform to the framework, the consequential shift in repayment start and end dates must be for an equal or shorter duration than the DCCO extension itself, and documentation must be completed across all lenders within the prescribed implementation period. Fall outside the window, fail the plan conditions, or miss implementation, and the account is downgraded to NPA immediately. Two further points the borrower should hold. The DCCO accommodation does not override ordinary recovery-based classification: a project account can be classified NPA before actual commissioning on its record of recovery alone. And an account downgraded for a failed plan is upgraded only after satisfactory performance following actual commissioning, not on the strength of a fresh promise.
Two Figures That Need Correcting (5% Myth + Scope Test)
Two figures in circulation need correcting before they distort a capex plan.
The first is provisioning. The proposal that construction-phase project exposures carry a 5% provision was not what the final framework adopted. The operative general provision is 1.25% construction and 1.00% operational for commercial real estate, 1.00% and 0.75% for residential housing within it, and 1.00% and 0.40% for all other project exposures, with the operational rate applying once repayment of interest and principal has commenced. Where a standard account carries a DCCO deferment, an additional quarterly provision applies until commercial operations begin.
The second is scope, and it matters more than most borrowers realise: these project rules bind a qualifying project-finance exposure, not every term loan. The definition requires project revenues to be the primary source of repayment, at least 51% of repayment to come from project cash flows, and a common agreement among all lenders. A brownfield machinery facility appraised on an operating company's existing balance sheet frequently sits outside that definition and is read under ordinary term-loan rules instead. Knowing which set governs your file before it is submitted changes how it should be structured.
Tenor, Moratorium and Margin
On tenor, RBI prescribes no fixed maximum, neither ten years nor fifteen. What it prescribes for a project-finance exposure is a proportional ceiling: the repayment tenor including any moratorium must not exceed 85% of the project's economic life. The constraint follows the asset, not a calendar.
A moratorium is a contractual construct, not an absence of obligation. It may cover principal, interest, or both, and the loan agreement must state the exact date repayment commences. For an industrial project with a genuine interest moratorium, the interest becomes due after the moratorium period rather than from the earlier debit date, and the post-commissioning repayment schedule must be designed around the project's initial cash flows rather than an arbitrary amortisation.
On margin, no lender is required to fund the whole invoice. Financial closure requires the project's capital structure — equity and debt — accounting for at least 90% of total project cost to be legally binding on all stakeholders, and disbursement tracks physical completion alongside promoter equity infusion. A sanctioned subsidy is not received margin; it counts when the capital structure is legally tied up, not when a scheme letter arrives.
Who Qualifies + How CCF Works the File
The gate: ticket ₹25 Cr to ₹500 Cr, fund-based and non-fund-based; DSCR above 1x on the post-expansion cash flow; around 1.5x collateral cover; term structures up to 7 years, and 10 to 12 years where lease rental services a facility. Past SMA-1, SMA-2 or a regularised NPA is workable; an active NPA is never funded as it stands; suit-filed and wilful-default files stay out of scope.
Two exclusions sit at the edge of this lane. Land purchase and construction finance are outside this desk entirely. The single construction lane is builder last-mile funding, where the project is above 70% complete.
CCF appraises before any lender sees the file: the cost build-up including the working capital the expanded unit will need, the commissioning schedule and what it commits the borrower to, the incremental cash flow under sensitivity, and the security package. The Information Memorandum carries that structure so every lender reads the same file and the same date. Placement runs through a leading private bank's structured desk within CCF's structured funding practice. CCF does not promise approval, eligibility or timelines; lenders decide.
Project finance and term loan advisory below this band, or on a Pune-anchored mandate, runs through CCF's project finance and term loan lane. Where the requirement spans several instruments rather than a single capex facility, it belongs in structured funding.
AQ — 7 Questions
Q1. Is a commissioning delay only a problem if we miss an instalment?
No. The need to extend the commissioning date, and the expiry of the original or extended date, are each defined as credit events in their own right. The account enters the project-resolution process when the extension becomes necessary, whether or not any instalment has been missed.
Q2. Can the project timeline be extended as long as the bank agrees?
No. Deferment measured from the original commissioning date is bounded at up to three years for infrastructure projects and up to two years for non-infrastructure projects. Beyond that window, or where the resolution plan is not implemented on the prescribed conditions, the account is downgraded immediately.
Q3. Does any deferment of the commissioning date make the account NPA?
Not necessarily. A standard account may retain standard classification inside the permitted window, provided the resolution plan conforms, the repayment shift is for an equal or shorter duration, and documentation is completed across all lenders. Outside the window or on failed implementation, the downgrade is immediate.
Q4. Does RBI require a 5% provision on project loans?
No. That figure came from an earlier proposal and was not adopted. The operative general provision is 1.25% construction and 1.00% operational for commercial real estate, 1.00% and 0.75% for residential housing within it, and 1.00% and 0.40% for other project exposures.
Q5. Are a term loan and a project loan the same thing?
No, and the difference decides which rules govern your file. A project-finance exposure requires project revenues to be the primary source of repayment, at least 51% of repayment from project cash flows, and a common agreement among all lenders. A brownfield capex facility on an operating balance sheet often falls outside that definition.
Q6. Does RBI cap project term loans at ten or fifteen years?
No fixed maximum exists. For a project-finance exposure the repayment tenor including any moratorium must not exceed 85% of the project's economic life, so the ceiling follows the asset rather than a fixed number of years.
Q7. Will the bank fund the entire machinery invoice?
No universal entitlement to full funding exists. Financial closure requires the capital structure covering at least 90% of total project cost to be legally binding on all stakeholders, and disbursement tracks physical completion alongside promoter equity infusion. A sanctioned subsidy is not received margin.
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