National Bank for Financing Infrastructure and Development (NABFID)

National Bank for Financing Infrastructure and Development (NABFID)

Subject: Economy

Section: Monetary Policy

Context:

The central bank also observed that the setting up of the National Bank for Financing Infrastructure and Development (NABFID) is expected to shift the burden of long-term financing away from banks.

Concept: 

National Bank for Financing Infrastructure and Development (NABFID) 

NBFID will be set up as a corporate body with authorised share capital of one lakh crore rupees.

Objectives:

• To directly or indirectly lend, invest, or attract investments for infrastructure projects located entirely or partly in India.
• It intends facilitating the development of the market for bonds, loans, and derivatives for infrastructure financing.

Functions of NBFID:

• 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.
• Providing consultancy services in infrastructure financing.

Source of Funds:

• It may raise money in the form of loans or otherwise both in Indian rupees and foreign currencies, or secure money by the issue and sale of various financial instruments including bonds and debentures.
• It may borrow money from the central government, Reserve Bank of India (RBI), scheduled commercial banks, mutual funds, and multilateral institutions such as the World Bank and Asian Development Bank.

Initially, the central government will own 100% shares of the institution which may subsequently be reduced up to 26%.

Management of NBFID:

• NBFID will be governed by a Board of Directors.
• The Chairperson will be appointed by the central government in consultation with RBI.
• A body constituted by the central government will recommend candidates for the post of the Managing Director and Deputy Managing Directors.
• The Board will appoint independent directors based on the recommendation of an internal committee.

Support from the Central Government:

• The central government will provide grants worth Rs. 5,000 crore to NBFID by the end of the first financial year.
• The government will also provide guarantee at a concessional rate of up to 0.1% for borrowing from multilateral institutions, sovereign wealth funds, and other foreign funds.
• Costs towards insulation from fluctuations in foreign exchange (in connection with borrowing in foreign currency) may be reimbursed by the government in part or full.
• Upon request by NBFID, the government may guarantee the bonds, debentures, and loans issued by NBFID.

Prior Sanction For Investigation And Prosecution:

• No investigation can be initiated against employees of NBFID without the prior sanction of the central government in case of the chairperson or other directors, and the managing director in case of other employees.
• Courts will also require prior sanction for taking cognisance of offences in matters involving employees of NBFID.