HUDCO issues letter sanctioning ₹9,303.66 crore loan to B-SMILE for Tunnel Road project

The Housing and Urban Development Corporation (HUDCO) has formally issued a loan sanction letter to B-SMILE, approving a loan of ₹9,303.66 crore for the construction of the first corridor of the Twin Tunnel Road project (North-South corridor). HUDCO has instructed the Special Purpose Vehicle (SPV) to furnish the required supporting documents and execute a formal agreement before the loan is operationalised.

According to the sanction letter dated August 4, 2025, reviewed by The Hindu, the loan will primarily be disbursed on the guarantee of the State government. The loan will have an interest rate of 8.95% for the first year, finalised after a rebate of 0.10%. The loan has a total tenure of 24 years and 2 months (290 months), which includes a draw period of 4 years and 2 months (50 months) followed by a repayment period of 20 years (240 months). The disbursement of funds will be carried out in mutually agreed phases, according to the letter.

The letter further stipulates that B-SMILE must display signboards at all project sites, particularly in high-visibility locations, clearly acknowledging HUDCO’s financial assistance to the project.

The North-South corridor, which stretches 16.8 km, is estimated to cost ₹17,780.13 crore. While the government had earlier said that the project would be financed through the Build-Operate-Own-Transfer (BOOT) model, where the concessionaire would shoulder 60% of the cost with the remaining 40% borne by the government, HUDCO’s sanction letter sets a different financial structure. As per the letter, B-SMILE will be responsible for 47.67% of the project cost, amounting to ₹8,476.47 crore of the estimated total cost.

Safeguards and requirements

To safeguard repayment and ensure accountability, HUDCO has directed B-SMILE to submit a government order transferring proceeds from premium Floor Area Ratio (FAR) and advertisement revenue from auctioning advertising rights under the new bylaws across the city,” as transferred by the BBMP” directly to the SPV. B-SMILE is also required to open an escrow account, where both premium FAR proceeds and advertisement revenues will be exclusively deposited. “HUDCO shall at all times possess a first charge over the funds held within this Escrow account,” the letter said.

Additionally, the SPV must provide a commitment letter from the Bruhat Bengaluru Mahanagara Palike (BBMP, now Greater Bengaluru Authority – GBA) ensuring budgetary provisions in its accounts for loan repayment. The GBA must also issue a commitment that any shortfall in revenues from FAR and advertisements, in relation to HUDCO’s repayment liabilities, will be compensated by GBA through its alternative receipts.

“In case the premium FAR and advertisement revenues are not commensurate with the projected cash flows, the agency shall ensure to provide a commitment letter from the government, duly concurred by the Finance Department, to make good the shortfall for servicing the HUDCO loan,” the letter further states.

Rules and conditions

HUDCO has also cautioned that the sanctioned loan must not be diverted to any other project. The SPV is required to submit quarterly progress reports, while HUDCO will conduct site inspections before releasing each instalment.

Confirming the development, B.S. Prahallad, Technical Director, B-SMILE, told The Hindu that they have received the sanction letter and the required documents were being prepared. “We will submit the documents after closing the tender, as certain details about the concessionaire are necessary,” he said. He also reassured that the project would not impose any direct financial burden on the public, as it has been deliberately structured to be funded through premium FAR and advertisement revenues.

The project tender, originally scheduled to close on September 3, had to be extended to September 23 following requests from prospective bidders for additional time. Nearly 11 firms participated in the pre-bid meeting, including several international companies that have tied up with Indian partners to bid for the project.