National Bank for Financing Infrastructure and Development Act, 2021

About National Bank for Financing Infrastructure and Development (NBFID) Act,2021

• Aim: The Act seeks to establish the NBFID as the principal development financial institution(DFIs) for infrastructure financing.
• DFIs are set up for providing long-term finance for segments involving risk beyond the acceptable limits of commercial banks and other ordinary financial institutions.

Click Here to Read About Development Financing Institution(DFIs)

Structure of the NBFID:

• NBFID will be a corporate body with authorised share capital of Rs. 1 lakh crores.
• Initially, the central government will own 100% shares of the institution. This share may subsequently be reduced up to 26%.

Objectives:

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

Functions:

NBFID will work toward financial as well as developmental objectives.

Financial Functions include:

• Firstly, extending loans and advances for infrastructure projects.
• Secondly, taking over or refinancing such existing loans.
• Thirdly, attracting investment from private sector investors and institutional investors for infrastructure projects.
• Fourthly, organising and facilitating foreign participation in infrastructure projects.
• Fifthly, facilitating negotiations with various government authorities for dispute resolution in the field of infrastructure financing.
• Lastly, providing consultancy services in infrastructure financing.

Developmental functions include:

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

Management of NBFID:

• A Board of Directors will govern the NBFID. The Chairperson will be appointed by the central government in consultation with RBI.

Source of funds:

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

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 a guarantee at a concessional rate of up to 0.1%. This facility will be available for borrowing from multilateral institutions, sovereign wealth funds, and other foreign funds.

The prior sanction for investigation and prosecution:

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

Other DFIs:

• The Act also provides for any person to set up a DFI by applying to RBI.
• RBI may grant a licence for DFI in consultation with the central government. RBI will also prescribe regulations for these DFIs.