Coming, an exclusive funding institution

Heeding to the calls for a Development Financial Institution (DFI), Finance Minister Nirmala Sitharaman announced the setting up of one to act as a provider, enabler and catalyst for infrastructure financing. The DFI will be capitalised with a funding of ₹20,000 crore, and is expected to have a lending portfolio of ₹5-lakh crore in three years.

This move will be an important step towards mobilising resources and to increase funding for the National Infrastructure Pipeline (NIP).

The concept of DFI is not new to India. The country’s first DFI was operationalised in 1948, with the setting up of the Industrial Finance Corporation of India (IFCI).

Then came the Industrial Credit and Investment Corporation of India (ICICI) and the Industrial Development Bank of India (IDBI) to promote long-term financing for infrastructure projects and industry. However, over the last 10-15 years, they transformed into universal banks and lost focus on infrastructure lending.

Global examples

According to an industry veteran, globally, most developing and developed markets have such institutions which are government owned.

These DFIs support economic growth and development because they can take certain risks which commercial institutions like banks cannot take.

According to Sunil Kanoria, Vice-Chairman, Srei Infrastructure Finance Ltd, DFIs have very important role to play in India. The government could consider merging some of the institutions such as PFC and REC to create a large DFI and come up with a robust and well managed set-up, he observed.

“Such institutions should have a very good governance and should be managed by the best of people who have the right kind of skill and capability,” he said.

Implementation crucial

While a professionally managed DFI with a starting capital of ₹20,000 crore augurs well, implementation is crucial now, and is probably the elephant in the room, said Sameer Bhatia, President, CRISIL Infrastructure Advisory.

The NIP has been expanded to 7,400 projects, with around 217 projects worth ₹1.10-lakh crore completed so far, the FM announced.

Apart from a DFI, the government has identified three thrust areas to increase funding for NIP — creation of institutional structures, a focus on monetising assets (a National Asset Monetisation Pipeline is being planned) and enhancing the share of capital expenditure.

Also, with a view to attract foreign investment into infrastructure funding, the FM has allowed infrastructure debt funds to raise capital by issuing zero coupon bonds. It has also allowed the relaxation of certain conditions relating to prohibition on private funding, restriction on commercial activities, and direct investment.

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