SEBI proposes easing NDCF rules for road InvITs on major maintenance borrowings
JUNE 01, 2026
SEBI's existing net distributable cash flow framework prohibits InvITs and their special purpose vehicles (SPVs) from using external debt to fund distributions.
Market regulator Securities and Exchange Board of India (SEBI) has proposed allowing Infrastructure Investment Trusts (InvITs) and their underlying entities to exclude certain debt-funded major maintenance expenses from reducing Net Distributable Cash Flows (NDCF), providing relief to road-sector InvITs. The proposal seeks to address concerns that the current framework is against road assets where periodic major maintenance is typically financed through long-term borrowings.
Under the proposed rules, borrowings raised specifically for major maintenance activities may receive differentiated treatment while calculating NDCF, even though such expenses are classified as operating costs under accounting standards. The move could help road InvITs maintain more stable distributions to unitholders and better align the cash flow framework with industry financing practices.
SEBI proposal said, “Considering the request of industry association and in order to facilitate ease of doing business, it is proposed that payments made for the purpose of MM expense for the Road Projects of InvITs to the extent funded by external debt will be allowed to be factored (added back) for the purpose the NDCF computation”. But it will be subject to conditions like it applied to roads and bridges projects and would require prior approval from unitholders, with at least 60 percent of votes cast in favour. InvITs would also need to make detailed disclosures on project-wise maintenance debt, estimated costs, impact on future distributions and leverage, and alternative funding options. Statutory auditors must certify that the expenses comply with concession agreement requirements and are debt-funded.
The proposal follows representations made by the Bharat InvITs Association (BIA), which argued that major maintenance expenses are a unique feature of road infrastructure projects. These expenditures are incurred periodically to meet concession agreement obligations and maintain road quality, but cannot be capitalised under prevailing accounting standards despite generating long-term economic benefits.
At present, SEBI's NDCF framework prohibits InvITs and their special purpose vehicles (SPVs) from using external debt to fund distributions. Since major maintenance expenses are treated as operating expenses, they reduce cash flow from operating activities, the starting point for NDCF calculations, thereby lowering distributable cash flows even when the expenditure is financed through borrowings.
According to the industry body, debt financing has historically been the preferred funding mechanism for major maintenance across the road sector. It also said that retaining the current treatment could increase the weighted average cost of capital for road assets, affect acquisition valuations, and reduce the attractiveness of InvITs as a monetisation vehicle for infrastructure developers.
SEBI noted in the consultation paper that major maintenance expenses are treated as operating costs under generally accepted accounting principles and therefore reduce operating cash flows under the existing framework.