Recently, the Upper House of the Parliament (Rajya Sabha) cleared the National Bank for Financing Infrastructure and Development Bill of 2021.

  • This Bill seeks to establish the National Bank for Financing Infrastructure and Development as the principal Development Financial Institution for infrastructure financing.
  • NBFID was announced in the Union Budget 2021-22.

Development Financial Institution

  • They are set up for providing long-term finance for such segments of the economy where the risks involved are beyond the acceptable limits of commercial banks and other ordinary financial institutions.
    • Unlike banks, Development Financial Institution do not accept deposits from people.
  • They source funds from the market, government, as well as multilateral institutions, and are often supported through government guarantees.
  • NBFID will be set up as a corporate body with authorised share capital of Rupees 1 lakh crore.
  • Objective
    • Financial Objective
      • To directly or indirectly lend, invest, or attract investments for infrastructure projects located entirely or partly in India.
    • Developmental Objective
      • Includes facilitating the development of the market for bonds, loans, and derivatives for infrastructure financing.
  • Functions of NBFID
    • To Extending loans and advances for infrastructure projects.
    • To Taking over or refinancing such existing loans.
    • To Attracting investment from private sector investors and institutional investors for infrastructure projects.
    • To Organising and facilitating foreign participation in infrastructure projects.
    • To Facilitating negotiations with various government authorities for dispute resolution in the field of infrastructure financing.
    • To Providing consultancy services in infrastructure financing.
  • Source of Funds
    • It may raise money in the form of loans or otherwise both in Indian rupees and foreign currencies, or secure money by the issue and sale of various financial instruments including bonds and debentures.
    • It may borrow money from the central government, Central Bank, scheduled commercial banks, mutual funds, and multilateral institutions such as the World Bank and Asian Development Bank (ADB).
    • Initially, the Union Government will own 100 per cent shares of the institution which may subsequently be reduced up to 26 per cent.
  • Management of NBFID
    • NBFID will be governed by a Board of Directors (BoD). The Chairperson will be appointed by the central government in consultation with central bank.
    • A body constituted by the central government will recommend candidates for the post of the MD and Deputy MD.
    • The Board will appoint independent directors based on the recommendation of an internal committee.
  • Support from the GoI
    • GoI will provide grants worth Rupees 5,000 crore to NBFID by the end of the first financial year.
    • GoI will also provide guarantee at a concessional rate of up to 0.1 per cent for borrowing from multilateral institutions, sovereign wealth funds, and other foreign funds.
    • Costs towards insulation from fluctuations in foreign exchange (in connection with borrowing in foreign currency) may be reimbursed by the government in part or full.
    • Upon request by NBFID, the government may guarantee the bonds, debentures, and loans issued by NBFID.
  • Prior Sanction For Investigation and Prosecution
    • No investigation can be initiated against employees of NBFID without the prior sanction of the central government in case of the chairperson or other directors, and the managing director in case of other employees.
    • Courts will also require prior sanction for taking cognisance of offences in matters involving employees of NBFID.
  • Other Development Financial Institutions
    • National Bank for Financing Infrastructure and Development Bill also provides for any person to set up a Development Financial Institutions by applying to RBI.
    • Reserve Bank of India may grant a licence for DFI in consultation with the central government.
    • Reserve Bank of India will also prescribe regulations for these DFIs.