Kerala is seeking to mobilise Rs. 20.4 bn for urban infrastructure under the Centre’s Urban Challenge Fund (UCF), including up to Rs. 5.1 bn in central assistance. The state plans to submit its first one or two projects for approval within the next three to four months.

The scheme shifts urban infrastructure development away from conventional grant funding towards market finance and financially viable projects. Urban local bodies will be required to prepare assets that can generate sustainable revenue, with income from those assets intended to meet operation and maintenance costs after the initial project contract ends.

Under the Rs. 1 tn UCF, central assistance is capped at 25 per cent of eligible project costs. At least 50 per cent must be raised through market sources, including bank loans, municipal bonds and public-private partnerships. Kerala’s UCF Mission is prioritising partnerships and loans, while municipal bonds are seen as more difficult because they require credit ratings, detailed compliance and strong financial credentials.

The state is examining funding from non-banking financial companies, scheduled commercial banks, cooperative banks, the Housing and Urban Development Corporation and institutions operating under the National Bank for Agriculture and Rural Development. Potential projects are expected to address congestion and infrastructure gaps in cities through road widening, parking facilities, underground utility ducts and expanded sewage networks.

The town and country planning department has prepared plans covering master-plan updates, city beautification and the decongestion of core urban areas. The UCF has three broad areas: cities as growth hubs, creative redevelopment and water and sanitation. Eligible initiatives include economic and transit corridors, urban mobility, redevelopment of old city centres and markets, water supply, sewerage and integrated solid waste management. State officials said Kerala could use the creative redevelopment component to improve existing urban spaces while creating financially sustainable assets.