Budget to unveil large DFI for infrastructure

A new, large development financial institution (DFI) is being born under the partial ownership of the government and with considerably higher risk-tolerance than banks or even state-run, sector-specific lenders like PFC-REC or IRFC. An announcement in this regard is likely in the Budget FY22.

The proposed entity will have the specific mandate to finance large rural infrastructure projects that require long-term finance and could serve as antidote to general investment famine during economic downturns. It will work under an innovative framework, where private corporate funds and even global patient capital will find viability in India’s rural projects. Also, there will be practical solutions to the issue of asset-liability mismatches faced by banks as they lend to long-gestation projects.

According to a senior government functionary, the new entity would be designed to provide structured concessional loans and even grants to capital-intensive rural infrastructure projects. The DFI will be distinctly different from the existing four — Nabard, NHB, Sidbi, and EXIM Bank — as it will provide not just incremental last-mile finance and refinance, but will be the key anchor of the projects being financed.

While the proposed DFI would mobilise resources from assorted sources, including budgetary funds, household savings would be leveraged too. A few groups comprising government officials and representatives from Indian banking sector, global funds and Corporate India have been deliberating on the DFI model over the last several weeks, sources said.

Under the National infrastructure Pipeline (NIP), investments to the tune of Rs 111 lakh crore is envisaged in various infrastructure sub-sectors over the next 5 years, including at least Rs 60-70 lakh crore in debt financing. The National Investment and Infrastructure Fund (NIIF), which is supposed to play a key role in mobilizing the resources for the NIP, has made only modest headway so far. Close to five years after its start, the quasi-sovereign wealth fund is yet to develop into a large enough financing vehicle to be able to meaningfully anchor the government’s ambitious investment plans. NIIF manages assets of $4.3 billion across its three funds.

To catalyse debt funding of infrastructure projects, the Cabinet on Wednesday approved a proposal to infuse Rs 6,000 crore in NIIF’s debt platform, aiming to enable the two NIIF-sponsored incorporated entities to raise Rs 1 lakh crore in debt over five years.