The Finance Bill for National Infrastructure and Development 2021 was promulgated in Lok Sabha on 22 March 2021. DFIs were established to provide long-term financing to segments of the economy. It is where the risk involved exceeds the limits acceptable to commercial banks and other mainstream financial institutions. Unlike banks, DFIs do not accept deposits from individuals. They source from markets, governments, as well as multilateral organisations, and are often backed by government guarantees.
NBFID is incorporated as a company with an authorized capital of 1 lakh crore rupee. Shares of NBFID may be held by: –
- Central government,
- Multilateral institutions,
- Sovereign wealth funds,
- Pension funds,
- Financial institutions,
- Banks, and
- Any other institution prescribed by the central government.
Functions of NBFID
NBFID has both financial and developmental goals. The financial goal is to lend, invest or attract investment directly or indirectly to infrastructure projects in India in whole or in part. The central government defines the sectors covered by infrastructure. Development goals include facilitating market development of fixed income, loans and derivatives for infrastructure lending.
Functions of NBFID include:
- extending loans and advances for infrastructure projects,
- taking over or refinancing such existing loans,
- attracting investment from private sector investors and institutional investors for infrastructure projects,
- organising and facilitating foreign participation in infrastructure projects,
- facilitating negotiations with various government authorities for dispute resolution in the field of infrastructure financing, and
- providing consultancy services in infrastructure financing.
Source of Funds
NBFID may borrow or raise funds in both Indian Rupees and foreign currencies, or secure funds through the issuance and sale of various financial products, including bonds and corporate bonds. NBFID may borrow money from: –
- Central government,
- Reserve Bank of India (RBI),
- Scheduled commercial banks,
- Mutual funds, and
- Multilateral institutions such as World Bank and Asian Development Bank.
Management of NBFID
NBFID will be governed by a Board of Directors. The members of the Board include:
- The Chairperson appointed by the central government in consultation with RBI,
- A Managing Director,
- Up to three Deputy Managing Directors,
- Two directors nominated by the central government,
- Up to three directors elected by shareholders, and
- A few independent directors (as specified).
A committee set up by the central government proposes candidates for executive and deputy managing director posts. The Board of Directors appoints Independent Directors on the recommendation of the Internal Committee.
Role of Central Government
By the end of the first fiscal year, the central government will provide NBFID with a grant worth 5,000 rupees. The Government also provides guarantees on borrowings from multilateral institutions, sovereign wealth funds and other foreign funds at a preferential interest rate of up to 0.1%. The cost of hedging against fluctuations in exchange rates (in connection with borrowing in foreign currencies) may be fully or partially reimbursed by the state. At the request of NBFID, the government can guarantee bonds, corporate bonds and loans issued by NBFID.
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