Finally, India new DFI starts working

India's new DFI - NBFID - has started its work. Best of luck to infra financing!

Finally, India new DFI starts working

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• The story: India had 3 leading DFIs in the 1950s-90s period - the ICICI, IFCI and the IDBI. Economic reforms forced them to turn into commercial banks. Then, India had no DFI (Development Financial Institution) at all for many years. Sensing the problems this was creating, the govt. of Narendra Modi finally came up with a brand new DFI - the NBFID (National Bank for Financing Infrastructure and Development).
• Work starts: The NBFID is set to start its lending operations with 190-200 big infrastructure projects in roads, railways, and energy sector.

1. This announcement was made by newly appointed Chairman of NBFID, K V Kamath. The Central government had announced the appointment of K V Kamath as the chairperson of the newly set up NBFID.
2. The NBFID was set up with the aim of catalysing investment in fund-starved infrastructursector in India. Under the National Infrastructure Pipeline (NIP), there are 193 projects above Rs 1,000 crore each.
3. The NIP with an ambition of USD 1.5 trillion covers key sectors like roads, metro, railways, and energy. It also includes some social projects like irrigation projects.

• About NBFID: It was set up as a corporate body, with an authorised share capital of one lakh crore rupees. It was set up with following objectives: (i) To directly or indirectly lend, attract investment or invest for infrastructure projects that are located entirely or partly in India, and (ii) To facilitate the development of market for loans, bonds, and derivatives for infrastructure financing.
• Functions: The main functions are

To extend loans and advances for infrastructure projects.

To take over or refinance such existing loans.

To attract investment from private sector investors as well as institutional investors for infrastructure projects.

To organise and facilitate foreign participation in infrastructure projects.

To facilitate negotiations with several government authorities for dispute resolution with respect to infrastructure financing.

To provide consultancy services in infrastructure financing.

• Raising finance: The NBFID raises money in the form of loans or otherwise in Indian rupees and foreign currencies. It also raises money by issuing or selling financial instruments like bonds and debentures. It can also borrow money from central government, Reserve Bank of India, mutual funds, scheduled commercial banks besides multilateral institutions like Asian Development Bank and World Bank.
• EXAM QUESTIONS: (1) Compare and contrast the roles played by commercial banks and a DFI, in terms of infrastructural financing. (2) Why does the Modi govt. want to start a new PSU like the NBFID, when its stated goal is to privatise most PSUs? Explain.

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