The National Bank for Financing Infrastructure and Development (NaBFID) should consider offering innovative solutions like providing partial credit enhancements through rating upgrades or providing first-loss default guarantees to ensure that pension and insurance funds derive comfort in lending to the infra-sector to match their long-dated liabilities, said RBI Deputy Governor M Rajeshwar Rao.
The new age development finance institution (DFI) could play a critical role in facilitating loan syndication for large ticket loans and a lead role in supporting the SLMA (secondary loan market association) in the development of credit markets as well.
As the DFI develops its internal rating model for credit appraisal, it may also be able to offer products such as credit default swaps (CDS) which would go a long way in ushering confidence in the bond market space, Rao said in his keynote address at an Infrastructure Conclave organised by NaBFID.
“NaBFID can play an important role in several crucial developmental objectives, bond market development and the provision of technical assistance/ consultancy services for infra projects. It can strive to become a market maker and provide adequate liquidity to the investors,” he said.
Rao noted that the DFI has taken promising strides by sanctioning more than ₹1 lakh crore by the last financial year, along with a substantial increase in the actual disbursal.
The initial capital of ₹20,000 crore supplemented with the additional grant of ₹5,000 crore should support loan book growth in the near term, he added.
Further, the growth in scale of large institutional investors such as life insurance companies, pension funds etc., presents an opportunity for NaBFID to secure reliable long-term funding for their financing needs, offering a ‘natural fit’.
Consequently, it should also strive for a strong credit rating which will help it to tap both domestic and global sources of funding in future.
“It is also necessary that over the medium-term, plans for self-sustainable operations, under a business model that is not reliant on continuous government support, or regulatory dispensations would need to be in place,” the Deputy Governor said.