April 19, 2021

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DFI To Get Support From Government Guarantee, RBI Windows — BQ Exclusive

3 min read

The soon-to-be-set up National Bank For Financing Infrastructure And Development will get government guarantee support and direct access to liquidity from the Reserve Bank of India as it looks to kick-start infrastructure financing in the country.

The National Bank For Financing Infrastructure and Development Bill, 2021 was introduced in the Lok Sabha on Monday. A copy of the bill has been reviewed by BloombergQuint.

Government Guarantee Support

In order to help the organisation, which will be 100% government owned at the start, raise low cost funds, its borrowings can be guaranteed by the government, the Bill says.

“The Central Government may, on a request being made to it by the Institution, guarantee the bonds, debentures and loans issued by the Institution as to the repayment of principal and the payment of interest at such rate, terms and conditions as may be agreed by the Central Government.”

The guarantee will be provided at a concessional rate, not exceeding 0.1%. This guarantee may be extended to the DFI for borrowings from multilateral institutions, sovereign wealth funds, and such other foreign institutions as may be prescribed, the bill says.

Hedging costs in connection with any borrowing of foreign currency may be reimbursed by the Central Government in part or in full, it added.

Special RBI Window

Unlike other non-bank financial companies, the DFI will get direct access to the Reserve Bank of India’s funding facilities.

The bill states that the DFI will be permitted to “borrow money from the Reserve Bank repayable on demand or on the expiry of fixed periods not exceeding ninety days….” These short term funds can be “borrowed against the security of stocks, funds or securities (other than immovable property) in which a trustee is authorised to invest trust money by any law for the time being in force in India.”

The DFI will also be able to borrow money from the Reserve Bank “against bills of exchange or promissory notes arising out of bona fide commercial or trade transactions maturing within five years from the date of the borrowing.”

Business Of The DFI

The DFI shall lend or invest, directly or indirectly in infrastructure projects located in India, or partly in India and partly outside India, “with a view to foster sustainable economic development in India.”

It will also coordinate with the central and state governments, regulators, financial institutions, institutional investors and others to support the development of long-term non-recourse infrastructure financing in India.

The authorised share capital of the DFI is set at Rs 1 lakh crore. The government will hold at least 26% of the shares in the institution at all times.

Finance Minister Nirmala Sitharaman, at the time of the Union Budget presentation, said the government will provide Rs 20,000 crore for the institution. The institution will raise up to Rs 3 lakh crore for lending purposes, Sitharaman has said.

Somesh Jha
2021-03-22 06:48:17

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