President Ram Nath Kovind approved placing the National Bank for Financing Infrastructure and Development (NABFID) under the purview of the Department of Financial Services (DFS) in the Finance Ministry for administration purposes.
In a notification issued by the Cabinet Secretariat, “Administration of the National Bank for Financing Infrastructure and Development Act, 2021 and related matters,” has been allocated under Business Rules of the Government to Department of Financial Services. It has been made effective immediately.
New development financial institution
The National Bank for Financing Infrastructure and Development Act was enacted by Parliament in March. With this, a new development financial institution will come into existence. It will have both developmental and financial objectives. Among other things, this would include developing a deep and liquid bond market of international standards for long-term infrastructure financing in India, including through widening of the issuer and investor base.
It will also facilitate the development of markets for interest rate derivatives, credit derivatives, currency derivatives and other such innovative financial instruments as may be necessary for infrastructure financing. The financing objectives would involve establishing a credible framework that attracts equity investments from domestic and global institutional investors as well as debt investments, including green finance, from investors, aligned to their risk appetite and asset-liability profile, in order to cater the financing needs of Indian infrastructure sector.
According to the Act, debt securities, including bonds and debentures, issued by the Institution should be considered as eligible for purposes such as approved investments, securities, etc., as per limits and conditions to be prescribed by Indian financial regulators for their regulated entities. The Institution will also be empowered to lend to, or invest in, infrastructure projects located in India, or partly in India and partly outside India, prioritising systemic risk mitigation, credit enhancement, subordinate debt, debt maturities suited to project life spans and to raise long-term finance for the same.
The act also prescribed that the Institution may be involved in project structuring, monitoring and monetisation of completed projects by itself or through its subsidiaries, etc., promoting innovation in financial products and services including by issuing long-term bonds with explicit or implicit sovereign guarantee, underwriting and dealer services. Overall, “the Institution shall provide a supporting, technology enabled ecosystem across the life cycle of infrastructure projects as a provider, enabler and catalyst for sustainable infrastructure financing in India with the backing of the Government. The Institution shall support the bond market with the aim of fostering complementarity of market raised debt with lending for infrastructure projects,” the Act said.