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Six states take 67.1% of FY26 project sanctions as capex revives

Banks and financial institutions sanctioned ₹4.4 lakh crore of projects in 2025-26, nearly 19% more than the year before, but six states absorbed 67.1% of it.

What happened

Banks and financial institutions sanctioned projects worth ₹4.4 lakh crore in 2025-26, up nearly 19% from ₹3.7 lakh crore a year earlier, an RBI study in the central bank's Monthly Bulletin found. Maharashtra overtook Gujarat as the largest destination with ₹88,880 crore, or 20.2% of the total. Gujarat followed at ₹78,760 crore (17.9%) and Rajasthan at ₹48,840 crore (11.1%). Six states together took about ₹2.96 lakh crore, or 67.1%. The number of projects rose to 1,032 from 907.

Context

A sanction is a commitment to lend, not money spent, so this series reads the investment cycle a step before it shows up in output. Bank lending is also only part of the picture. In 2025-26, 509 private non-financial companies raised about ₹1 lakh crore through external commercial borrowings for capital expenditure, and 298 more raised ₹23,809 crore through IPOs for the same purpose. Counting all three channels, investment intentions covered 1,839 projects worth ₹5.6 lakh crore, against 1,581 projects worth ₹5 lakh crore in 2024-25.

Why it matters

Two things are happening at once, and they pull in opposite directions. The private investment cycle is genuinely strengthening: project count up 16%, value up 12%, and the RBI expects the outlook to stay healthy in 2026-27. But the geography is narrowing. Karnataka took 7.9%, Andhra Pradesh 5.8% and Tamil Nadu 4.3%, while Uttar Pradesh, Bihar and Madhya Pradesh sit well down the list despite holding a large share of the population. Investment that concentrates where capacity already exists widens regional income gaps rather than closing them.

Impact for India

  • Maharashtra: Its share jumped from 14.6% in 2024-25 to 20.2%, taking it past Gujarat for the first time in this series.
  • Gujarat: Still second, but its share fell from 20.6% to 17.9% even as the overall pool grew.
  • Banks: They financed about 55% of the aggregate project cost, roughly ₹2.4 lakh crore of fresh exposure to project risk.
  • Large corporates: Mega projects of ₹5,000 crore or more remain few in number but take a disproportionate share of total project cost.
  • Northern and eastern states: Uttar Pradesh, Bihar and Madhya Pradesh attract far less project investment, so the capex upturn bypasses much of the population.

Key data

Project cost sanctioned by banks and FIs, 2025-26: ₹4.4 lakh croreUp nearly 19% from ₹3.7 lakh crore
Share of the top six states: 67.1%About ₹2.96 lakh crore
Maharashtra's sanctioned project cost: ₹88,880 crore20.2% share, up from 14.6%Vs Gujarat's ₹78,760 crore
Projects sanctioned, 2025-26: 1,032Up from 907 in 2024-25
Total investment intentions, 2025-26: ₹5.6 lakh crore across 1,839 projectsValue up 12%, number up 16%Vs ₹5 lakh crore across 1,581 projects in 2024-25

Concepts

Project sanctionA lender's formal commitment to finance a specific project, recorded before the money is drawn or the asset is built.The ₹4.4 lakh crore figure is what banks agreed to fund in 2025-26, not what was spent.
External commercial borrowingA loan an Indian company raises from a foreign lender, usually in foreign currency and under RBI limits.509 private non-financial companies used this route to raise about ₹1 lakh crore for capital expenditure.
Capital formationAdditions to a country's stock of productive assets such as plant, machinery and infrastructure.Rising project sanctions signal capital formation in the pipeline before it reaches the national accounts.
Investment intentionsPlanned capital spending that firms have committed to but not yet executed.Counting bank loans, ECBs and IPO money together gives 1,839 projects worth ₹5.6 lakh crore of intentions.

Theory lens

Circular and cumulative causation — Gunnar Myrdal argued that once a region pulls ahead, the things that follow investment, such as skilled labour, suppliers, roads and lenders who already know the place, draw still more investment to the same spot. Regional gaps then widen on their own rather than closing. The sanction data fits: six states took 67.1% of the ₹4.4 lakh crore sanctioned in 2025-26, and the states outside that group are not catching up.

Historical parallel

The pandemic marks the break in project size. Projects costing between ₹1,000 crore and ₹5,000 crore numbered roughly 20 to 42 in a typical pre-Covid year. Since then they have averaged around 80. Mega projects of ₹5,000 crore or more were also rare before Covid and have contributed a higher share of total project cost ever since. The investment cycle did not simply get larger. Its shape changed, with fewer, bigger bets carrying more of the total.

Stakeholders

Gains: MaharashtraTook ₹88,880 crore of sanctions, a 20.2% share, overtaking Gujarat.
Gains: Rajasthan and KarnatakaBoth raised their share of sanctioned project cost from the previous year.
Gains: Banks and financial institutionsFinanced roughly ₹2.4 lakh crore against a growing project pipeline.
Pressure point: GujaratShare of sanctioned project cost fell from 20.6% in 2024-25 to 17.9% in 2025-26.
Pressure point: Uttar Pradesh, Bihar and Madhya PradeshRank far down the list of destinations for bank-sanctioned project investment.
Pressure point: Andhra Pradesh and Tamil NaduBoth recorded lower shares than in the previous year, at 5.8% and 4.3%.

Practice Question — from the story

With reference to the RBI study on project investment sanctioned by banks and financial institutions in 2025-26, consider the following statements:

  1. Gujarat remained the largest destination for projects sanctioned by banks and financial institutions in 2025-26.
  2. Banks and financial institutions sanctioned 1,032 projects in 2025-26, compared with 907 projects a year earlier.

Which of the statements given above is/are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2
Reveal answer & explanation

Answer: 2 only

  • Statement 1: Incorrect because Maharashtra overtook Gujarat in 2025-26, with ₹88,880 crore or 20.2% of the total against Gujarat's ₹78,760 crore or 17.9%. Gujarat had led in 2024-25 with a 20.6% share.
  • Statement 2: Correct because banks and financial institutions sanctioned 1,032 projects in 2025-26, up from 907 projects a year earlier.

Therefore, the correct answer is 2 only.

Concept check — test your understanding

Project sanctions by banks and financial institutions are watched as a leading indicator of the private investment cycle. What does this series actually measure?

  1. Capital expenditure already completed and capitalised on company balance sheets during the year.
  2. Gross fixed capital formation as it is recorded in the national income accounts.
  3. Investment intentions, because a sanction records a lender's commitment against a project that has not yet been built.
  4. The order books of engineering and construction firms for the year ahead.
Reveal answer & explanation

Answer: C

  • A sanction is the point at which a lender agrees to fund a project. Construction, drawdown and output all come later, which is why the series leads the investment cycle rather than tracking it.
  • Option A describes realised capex. That is a lagging measure and would show the same investment a year or more after the sanction.
  • Option B is the national-accounts measure of investment actually carried out in the period. Sanctions feed into it later; they are not the same series.
  • Option D is a genuine capex proxy, but it captures work already contracted to specific firms rather than the financing commitments behind new projects.