How hotels are being funded in India in 2025–26

In 2025–26 India’s hotel sector is being financed through a widening spectrum of capital sources. Traditional bank lending still matters, but its share is declining relative to non-bank credit, private credit funds, private equity and sovereign investors, REITs/InvITs and bond markets. Newer channels — asset tokenization, structured private-credit strategies, and strategic corporate co-investments — are emerging alongside government support (budgetary allocations, tourism schemes and targeted fiscal incentives). The result: more diversified capital but also greater complexity and stronger regulatory scrutiny (especially around tokenization and collective investment structures). Key enablers in 2025 include a buoyant recovery in tourism, growth of private credit and REIT activity, and selective sovereign/PE deals.

1. Macro backdrop: why funding patterns are changing

Three factors are driving the evolution of hotel financing in India:

Post-pandemic demand recovery and stronger tourist flows. India’s inbound and domestic tourism volumes recovered strongly through 2023–25, prompting hotel groups and real-estate owners to accelerate expansion and upgrades. The Union Budget 2025-26 and Ministry of Tourism programmes have further signalled policy support for infrastructure and destination development.
Shift in capital markets and credit supply. Indian corporates increasingly use non-bank capital (equity markets, bonds, NBFCs and private credit) as bank credit growth moderates and regulatory capital costs rise for banks and NBFCs. Private credit and alternative lenders have expanded product sets to finance mid-sized and structured hotel deals.
Financial innovation and regulatory responses. Tokenization, fractional ownership platforms and SM-REIT regimes are creating new routes to monetize hotel real estate, but SEBI and other regulators have been active in channeling these structures into regulated products. Simultaneously, REITs and InvITs are broadening investor access to income-yielding hospitality and mixed-use assets.

2. The financing menu: primary sources and how they are used

Below I describe the main financing channels for hotels in India in 2025–26, how they are being used, and the practical trade-offs developers and operators face.

2.1 Commercial bank loans (term loans, working capital)

Role & usage. Banks remain the default lender for construction term loans, refinance and working capital for branded hotel chains and established owners. Banks are still preferred for stabilized assets backed by strong cash flows and covenants.

Trends & constraints. After the pandemic RBI prudential changes, banks became more risk-sensitive for certain real-estate exposures. Bank lending has not disappeared but its relative share is declining as projects require larger ticket sizes, extended gestation and cross-border co-investors. Developers with weak balance sheets may find banks impose tighter covenants or higher margins.

2.2 NBFCs and private credit funds (including structured credit)

Role & usage. NBFCs and private credit funds finance construction-phase loans, mezzanine finance, acquisition financing and refinancing for stressed portfolios. They are increasingly important for mid-market and non-investment-grade hotel credits where banks have limited appetite.

Why growing? Regulatory changes and funding diversification among NBFCs encouraged them to raise foreign and domestic borrowings; private credit funds (including India-focused global managers) see structured hotel loans as attractive yields with real-asset security. Reports in 2024–25 show private credit and NBFC channels expanding their presence in corporate India.

Trade-offs. Private credit is flexible and faster, but more expensive than bank debt and may require equity kickers or warrants. Lenders often demand stricter covenant packages and accelerated amortization.

2.3 Private equity, growth equity and sovereign wealth funds

Role & usage. PE and sovereign investors provide growth capital, sponsor acquisition financing and co-invest in platform deals (brand rollouts, hospitality portfolios). They also fund asset upgrades that require equity rather than debt.

Notable activity. In 2025 a number of high-profile transactions involved sovereign/PE capital in Indian hotels. For instance, GIC entered into a material co-investment with an Indian hotel operator to fund expansion and debt reduction — evidence of sovereign interest in Indian hospitality assets. These investors bring patient capital and institutional governance, which can be transformational for assets needing repositioning.

Trade-offs. PE/sovereign capital dilutes promoter equity, may insist on exit timelines and operational KPIs, but gains include scale, network effects and access to international distribution channels.

2.4 REITs / InvITs and listed real-estate capital

Role & usage. REITs have become a meaningful buyer of stabilized commercial real estate and are starting to include hospitality properties in mixed portfolios (malls, mixed-use complexes with hotel components). Listed REITs enable asset owners to monetize mature assets and recycle capital into new developments.

Market status. Since their launch, Indian REITs have raised billions and shown investor appetite for yield assets. Acquisitions by REIT trusts have included complexes with hotel components, indicating a developing pathway for hotels to access public capital while retaining long-term operational partnerships.

Trade-offs. REITs are primarily suited to stabilized, income-generating assets. New hotel developments (construction and brand-build) are less likely to be REIT-funded until stabilized and de-risked.

2.5 Bond markets — corporate bonds, masala bonds, green/sustainable bonds

Role & usage. Rated hotel groups and hospitality holding companies increasingly tap corporate bond markets and thematic bond issuances (green bonds for energy-efficient hotels). Bonds are used to refinance expensive bank debt, fund capex and finance roll-outs for rated issuers.

Trends. Indian capital markets deepened in 2024–25, with corporations preferring bond and equity issuance as complementary funding routes. Bond structures offer tenure flexibility and investor diversification.

Trade-offs. Access to bond markets depends on credit rating; many hotel sponsors remain unrated or sub-investment grade.

2.6 External Commercial Borrowings (ECBs) and cross-border lending

Role & usage. Hotels engaged in large-ticket projects or franchise/license arrangements often use ECBs for lower-cost foreign currency funding, subject to RBI eligibility and end-use rules. The ECB channel remains an important complement for chains with USD revenue streams (international reservations, foreign investor sponsors).

Regulatory constraints. ECBs are regulated (limits on amount, minimum maturity and prohibited end uses such as land acquisition), but remain an available route for eligible borrowers in the hotel sector.

2.7 Government grants, incentives and destination financing

Role & usage. Central and state tourism schemes (Swadesh Darshan, PRASHAD, destination development challenge funds) provide capex support, viability gap funding and promotional subsidies for targeted projects and infra upgrades. The Union Budget 2025-26 allocated funds to boost tourism infrastructure and skill development, creating indirect finance for accommodation and destination projects.

Practical note. These grants rarely fund full project cost but improve project IRR and mobilize private capital by lowering downside risk.

2.8 Family offices, HNIs, strategic corporate partnerships

Role & usage. Family offices and HNIs fund boutique hotels, luxury resorts and niche experiential assets. Strategic corporate co-investments (real-estate developers partnering with hotel companies) remain common for mixed-use projects; such structures align real estate developers’ balance-sheet strength with hotel operators’ brand and operating expertise. Recent co-investment announcements illustrate this trend.

2.9 Asset tokenization and fractional ownership (emerging)

Role & usage. Tokenization promises fractionalized ownership, improved liquidity and retail access to hotel real assets. However, in India tokenization sits in a complex regulatory environment; SEBI’s CIS rules and SM-REIT clarifications mean token promoters must structure offerings within recognized frameworks (REITs, InvITs, AIFs) to avoid being classified as unlawful collective investment schemes. Legal practitioners and advisors have published roadmaps advising compliance through existing regulated vehicles rather than unregulated retail-facing tokens.

Practical note. Tokenization pilots and regulated SM-REIT pathways are active, but large-scale retail tokenization of hotels is still nascent due to compliance, custody and taxation considerations.

2.10 Distressed asset financing and restructuring

During 2023–25 a secondary market for distressed hospitality assets widened: credit funds, opportunistic buyers and REITs acquired impaired hotels. Restructuring (haircuts, debt-to-equity swaps) combined with fresh equity injections have been common for older assets or those affected by underperformance. This creates acquisition and value-creation opportunities for institutional capital.

3. Who is lending / investing? the investor landscape

Domestic public sector and private banks: continued role in senior debt for rated, stabilized projects.
NBFCs and housing finance NBFCs: flexible term lending and mezzanine products.
Private credit funds and alternative lenders: growing presence for non-investment grade, construction and bridge financing.
Private equity and sovereign funds (GIC, other SWFs): platform and strategic deals, often co-investing with promoters.
Listed REITs/InvITs and institutional investors (pension funds, insurance): buyers of stabilized hotel or mixed-use assets.
Family offices, HNIs: boutique and luxury assets, pre-development capital.
Retail investors (via regulated structures): limited direct exposure, expanding via REITs or regulated fractional real-estate products.

4. Financing structures and deal mechanics in use (common patterns)

Sponsor equity + bank/NBFC construction loan + mezzanine: common for greenfield or conversion projects. Mezzanine often supplied by NBFCs or private credit funds.
Sale-and-leaseback / management agreement + REIT monetization: owner sells real estate to REIT, hotel operator retains management contract — frees capital for expansion.
Platform roll-outs with PE equity and project-level debt: PE sponsors build multi-asset hospitality platforms and invite strategic operators.
Structured refinancing via corporate bonds and ECBs: used by rated groups to reduce funding cost and extend tenure.
Hybrid models — co-investment deals with developers: developers provide land and part equity; hotel operator or brand contributes management expertise and minority equity.

5. Regulatory and policy environment shaping financing

SEBI and tokenization/CIS risk. SEBI has clarified that many fractionalization models risk classification as Collective Investment Schemes unless structured under regulated entities (SM-REITs, InvITs, AIFs). Legal advisories recommend compliance pathways; this is shaping how tokenization pilots are structured.
RBI rules on ECBs and NBFC risk weights. RBI prescribes eligibility, maturity and end-use criteria for ECBs; changes to risk weights and supervision of NBFCs affect the cost and availability of non-bank funding.
Central and state tourism schemes. The Ministry of Tourism’s ongoing schemes provide targeted project support, capacity building and destination promotion; state governments have their own incentive packages. Union Budget allocations in 2025-26 reinforced tourism infrastructure support.

6. Case studies & market illustrations (representative)

Sovereign co-investment with an Indian hotel group (GIC & SAMHI). Illustrates how sovereign capital reduces sponsor leverage and funds growth and deleveraging.
REIT acquisition of mixed-use assets including hotels (Nexus Select Trust). Demonstrates the practical route for asset monetization and how REITs can absorb hotel components within larger portfolios.
Developer + hotel operator co-investment (IHCL & Ambuja Neotia). A strategic co-investment model where a developer commits substantial equity and the operator co-invests to expand pipeline.

These examples evidence the mix of equity, institutional capital and structured deals defining 2025 market activity.

7. Risks, frictions and constraints

Capital-intensity and seasonality. Hotels remain capital-heavy with variable occupancy and seasonality risk; lenders price this into margins and covenants.
Regulatory uncertainty for tokenization. Retail tokenization remains attractive in theory but constrained by compliance risks. Market participants must adopt SEBI-compliant structures.
Interest rate and currency risk for ECBs. Currency mismatch and rising global rates can make ECBs risky without hedging strategies.
Asset obsolescence risk. Hospitality is experience-driven: older assets need continuous capital to remain competitive — this increases refinancing and capex needs.
Concentration risk in investor appetite. REIT/listed buyers prefer large, stabilized assets; smaller owners may face higher financing costs and limited exit options.

8. What’s new in 2025–26 (trends to note)

Private credit is maturing as a sectoral financier. Private credit funds now structure bespoke hospitality financings — bridging bank reluctance for mid-sized deals.
REITs and listed vehicles expanding into mixed-use hospitality exposures. REIT transactions and acquisitions that include hotel components are becoming more common; REITs provide an exit and liquidity path for mature assets.
Regulated tokenization pathways are being clarified. Advisors and law firms highlight SM-REITs/AIFs/InvITs as compliant channels for fractionalization, accelerating pilots within regulatory guardrails.
Government push for tourism infrastructure in 2025 Budget. The Union Budget augmented destination financing, skill development and promotional spend—indirectly improving hotel project bankability in targeted locations.

9. Practical playbook for developers, operators and investors

For developers/owners:

De-risk projects for institutional capital: stabilize cash flows, secure long-term management contracts and maintain transparent financials.
Consider phased development with equity tranches; use mezzanine/private credit for bridging.
Explore sale-and-leaseback to REITs or long-term leases to recycle capital.

For operators:

Use brand strength to secure sponsor equity and attract co-investors.
Propose performance-linked revenue models to align with lenders and reduce perceived risk.

For investors (PE, SWF, private credit):

Focus on value-creation (repositioning, tech upgrades) and operational improvement to lift RevPAR and EBITDA margins.
Use hedging for currency risk if deploying ECBs or foreign capital.

For policymakers and industry bodies:

Continue to provide project-level incentives for off-season destinations to improve viability.
Clarify tokenization rules and create sandboxes for compliant innovation.

10. Outlook: 18–36 months

Expect continued diversification of capital into hospitality. Private credit and PE will expand their share, REIT issuance and M&A will create liquidity for stabilized assets, and regulated tokenization pilots may open new retail pathways — but only within SEBI-approved frameworks. Government infrastructure programmes will continue to catalyse project pipelines in priority destinations. Downside risks include macro-economic shocks, sharp interest rate rises or regulatory missteps on tokenized capital.

11. Conclusion — who wins and who adapts

Winners: well-capitalized promoters, institutional investors able to underwrite operational turnaround, REITs/InvITs and private credit managers with sector expertise.
Adaptors: midsize owners who adopt structured financing (mezzanine, sale-and-leaseback) and partner with operators.
Challenges: smaller, highly leveraged owners in non-prime locations will need restructuring or strategic exits.

India’s hotel financing landscape in 2025–26 is more granular and robust than in previous cycles. Access to a broader investor base improves the sector’s ability to fund upgrades and expansion — provided stakeholders manage regulatory, currency and operational risks carefully.