The government introduced the National Bank for Financing Infrastructure and Development Bill, 2021, in Lok Sabha on Monday. This bill aims to facilitate long-term finance for infrastructure development and projects in India. This bill seeks to establish the National Bank for Financing Infrastructure and Development (NBFID). The NBFID will be the principal development financial institution for providing finance to infrastructure.
The NBFID will support the development of long-term non-recourse infrastructure finance in the country. It includes the bonds and derivatives markets that are necessary for infrastructure financing. The bill also seeks to set up government-owned Development Finance Institutions (DFIs) after obtaining approval from India’s Reserve Bank (RBI). The DFIs will have tax benefits for raising funds from investors.
The NBFID will provide finance options for the National Infrastructure Pipeline projects. The head office of the NBFID will be in Mumbai, and it may establish branches within or outside India. The NBFID will be a corporate body set up with an authorised share capital of one lakh crore rupees.
The central government, sovereign wealth funds, multilateral institutions, insurers, pension funds, financial institutions and banks can hold the shares of the NBFID. However, the central government will hold at least 26% shares of the NBFID at all times. The NBFID will have both developmental and financial objectives.
The developmental objectives of the NBFID will be to coordinate between the central and state governments, institutional investors and financial institutions in India or outside India for improving and facilitating the development of long-term non-recourse infrastructural finance of the relevant institutions.
The financial objectives of the NBFID will be to invest, lend or attract investments from institutional investors and private sector investors, directly or indirectly, in the infrastructure projects located in India or outside India for fostering sustainable economic development in the country.
The NBFID can raise cash in the form of loans in both Indian rupees and foreign currencies. It may also secure money by issuing and selling various financial instruments, including debentures and bonds. It can borrow money from the central government, scheduled commercial banks, RBI, mutual funds and multilateral financial institutions.
The central government will guarantee the borrowings from sovereign wealth funds, multilateral institutions and other foreign funds of the NBFID at a concessional rate of up to 0.1%. The government will also reimburse in part or full of the cost of insulation from foreign exchange fluctuations. At the request of the NBFID, the government may provide a guarantee to debentures, bonds and loans issued by the NBFID.
The National Bank for Financing Infrastructure and Development Bill introduced by the government will substantially increase the infrastructure investments and pull the country’s economy out of the COVID-19 situation. The NBFID will help fill the existing gaps in long-term infrastructure financing and enhance borrowing and lending in the infrastructure sector, thus boosting India’s economic growth.
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