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Centre introduces NaBFID Bill to support funding infra projects

Tuesday, 23 Mar 2021

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Union Minster of Finance Nirmala Sitharaman introduced the National Bank for Financing Infrastructure and Development (NaBFID) Bill 2021 in the Lok Sabha to pave the way for setting up of a government-owned development finance institution.

This will help fund about 7,000 infra projects under the National Infrastructure Pipeline (NIP). The proposed legislation will give effect to the Union Budget 2021 announcement made by the Finance Minister. The government has proposed Rs 20,000 crore to capitalise the institution.

The Union Cabinet had also recently approved the Budget proposal of setting up a development finance institution (DFI), which will have tax benefits to enable fund raising from investors.

The National Bank for Financing Infrastructure and Development will be set up with a corpus of Rs 20,000 crore and the government will give an initial grant of Rs 5,000 crore. The government expects the DFI to leverage this fund to raise up to Rs three lakh crore in the next few years.

The Bill seeks to establish the NaBFID to support the development of long term non-recourse infrastructure financing in India, including development of the bonds and derivatives markets necessary for infrastructure financing.

As per the statement of objects and reasons of the Bill, it seeks to enable the Central government, multilateral institutions, sovereign wealth funds, and such other institutions to hold equity in the NaBFID.

It proposes to enable the institution to provide financial assistance to infrastructure projects located in India or partly in the country and to enable the company to borrow or raise money by way of loans both in rupees and foreign currencies.

It also provide adequate safeguards for decision making to address risk aversion and proposes establishment of other development financial institutions, in addition to the NaBFID established under the proposed legislation.

It will also facilitate the development of markets for interest rate derivatives, credit derivatives, currency derivatives and such other innovative financial instruments as may be necessary for infrastructure financing.

The government will provide the institution with grants and contributions, guarantees at concessional rates for foreign borrowings and any other concessions. Moreover, dilution or sale of stake may be considered once the NaBFID has achieved stability and scale.

The Bill proposes to establish the head office of the institution in Mumbai, Maharashtra and permits to form subsidiaries or joint ventures or branches, in India or outside.

The Centre will hold at least 26 percent of the shares at all times, adding concessional rate of fees should not exceeding 0.1 percent for government guarantee.

The performance of the institution will, once in every five years, be reviewed by an external agency to be appointed by the central government.

About 7,000 projects have been identified under NIP with a projected investment of Rs 111 lakh crore during 2020-25.