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"ADB is extending loans of up to $500 million to help India improve rail services... The ADB Board of Directors has approved a multi-tranche financing facility for the Railway Sector Investment Program (RSIP)," the Manila-headquartered agency said in a statement.
The loan is intended to finance additional lines and the electrification of hundreds of kilometers of existing track, along with installing new signalling.
ADB will also support accounting reforms to improve operational efficiency of Indian Railways.
The RSIP will target freight and passenger routes in Chhattisgarh, Orissa, Maharashtra, Karnataka and Andhra Pradesh, including the critical Golden Quadrilateral corridor that connects Chennai, Kolkata, Mumbai and New Delhi.
The loan has a 25-year term, with a grace period of five years. The government of India will provide counterpart finance of over $644 million to cover the costs of the total program, estimated at over $1.1 billion.
"This programme will help deliver more energy efficient, safe, reliable, and environmentally friendly rail services along key high density routes," ADB principal transport specialist Hiroaki Yamaguchi said.
He further added: "This in turn will result in direct and indirect economic opportunities for about 21 million people in programme areas who will benefit from faster travel times, lower costs and improved links to markets, production centers and social service facilities."
The Indian Railways catered to 7 billion passengers and carried 800 million tonnes of freight in the 2010-11 fiscal.
However, experts have said that a lack of investment in new infrastructure and institutional constraints have seen services struggling to keep up with the rise in traffic.
ADB will release the fund in several tranches, with an initial loan of $150 million.
The RSIP is being carried out by the Ministry of Railways and will end by December 2018.
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