National Bank for Financing Infrastructure and Development (NaBFID)

NaBFID: Relevance

• GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

NaBFID: Context

• Recently, RBI said that NaBFID will be regulated and supervised as an All India Financial Institution (AIFI) under the Reserve Bank of India Act, 1934.

NaBFID: Key points

• The National Bank for Financing Infrastructure and Development (NaBFID) Act, 2021, was passed in March 2021 and it came into force in April 2021.
• It becomes the fifth AIFI after EXIM Bank, NABARD, NHB and SIDBI.

What is NaBFID?

• The National Bank for Financing Infrastructure and Development (NBFID) is set up as the principal development financial institution (DFIs) for infrastructure financing.
• NBFID is set up as a corporate body with authorised share capital of one lakh crore rupees.
• Shares of NBFID may be held by entities like central government, multilateral institutions, sovereign wealth funds, banks and any other institution prescribed by the central government.
• Initially, the central government will own 100% shares of the institution which may subsequently be reduced up to 26%.

What is DFI?

• DFIs are set up to provide long-term finance for such segments of the economy where the risks involved are beyond the acceptable limits of commercial banks and other ordinary financial institutions.
• DFIs, unlike banks, do not accept deposits from people.
• Source of funds: market, government, as well as multi-lateral institutions.

नेशनल बैंक फॉर फाइनेंसिंग इंफ्रास्ट्रक्चर एंड डेवलपमेंट (एनएबीएफआईडी)

NaBFID functions

NBFID will have both financial as well as developmental objectives.

Financial objectives

• To directly or indirectly lend, invest, or attract investments for infrastructure projects located entirely or partly in India.
• Central government will prescribe the sectors to be covered under the infrastructure domain.

Developmental objectives

• Facilitating the development of the market for bonds, loans, and derivatives for infrastructure financing.

Other functions

• 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.

NaBFID source of funds

NBFID may raise money in the form of

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

What is AIFI?

• All India Financial Institutions (AIFI) is a group composed of financial regulatory bodies that play a pivotal role in the financial markets.
• The financial institutions assist in the proper allocation of resources, sourcing from businesses that have a surplus and distributing to others who have deficits.
• The financial institutions act as an intermediary between borrowers and final lenders, providing safety and liquidity.

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