Money & Banking

FM Nirmala Sitharaman introduces DFI Bill in Lok Sabha

Our Bureau New Delhi | Updated on March 22, 2021

Dedicated institution will give financial aid to infra projects in India, partly in India and partly outside country

Finance Minister Nirmala Sitharaman on Monday introduced a Bill to set up a dedicated institution in the Government as well in the private sector to provide finance for the infrastructure sector.

The institution to be set up by the Government will be called National Bank for Financing Infrastructure and Development. The Government has already committed ₹20,000 crore as equity capital and ₹5,000 crore as grant for the institution

“Its aim is to address market failures that stem from the long-term, low margin and risky nature of infrastructure financing. The Institution shall be wholly owned by the Central Government to begin with in order to foster confidence on its stability and sustainability and to raise resources at competitive rates,” the statement of objects and reasons for the Bill said.

How to make the DFI model work

Key objectives

The Government will provide the Institution with grants and contributions, guarantees at concessional rates for foreign borrowings and any other concessions. “Dilution or sale of stake may be considered once the Institution has achieved stability and scale in its business operations, but the Government would at all times hold 26 per cent of the paid-up voting equity share capital of the Institution,” the Bill stated.

Key objectives of the Bill include enabling the Central government, multilateral institutions, sovereign wealth funds, and such other institutions to hold equity in the Institution. It will enable the Institution to provide financial assistance to infrastructure projects located in India, or partly in India and partly outside India. It will provide adequate safeguards for decision making to address risk aversion.

To fund infra, Cabinet clears DFI Bill with ₹20,000-crore initial govt equity

Another objective is “to make provision for the establishment of other development finance institution, in addition to the Institution established under the proposed legislation.”

The Bill provides that the Central government may support the Institution through grants or contribution, as and when necessary, in the form of cash or marketable Government securities.

It provides for the protection of action taken in good faith by the institution or its Chairperson or other directors, employees or officers. It prescribes that no investigation agency will conduct any enquiry or investigation into any offence alleged to have been committed under any law, “in relation to any recommendation made or decision taken by the Chairperson or other directors, employees or officers of the Institution in discharge of his official functions or duties, without the previous approval of the competent authority specified therein.”

‘Will enhance lending’

Commenting on the Bill, Siddharth Srivastava, Partner with Khaitan & Co, said that it will definitely fill the existing gaps in long-term infrastructure financing, enhance lending in infrastructure sector and boost economic growth. Indian DFCs will also give the much-needed acceleration to infrastructure sector with lower cost of funding and lending arrangements with considerably longer tenure compared to commercial banks in general. That said, “in order to ensure success of DFIs in India, transparent management and strict adherence to legal and policy prescriptions is a must since public money is involved,” he said.

Highlights

* Government owned Development Finance Institution

* Authorised share capital of ₹1 lakh crore

* Shareholders to include Centre, multilateral institutions, sovereign wealth funds, pension funds, insurers, financial institutions, banks, etc

* Board of Directors to have Chairperson, a Managing Director, not more than three Deputy Managing Directors, two directors (to be nominated by the Central government), three directors (to be elected by shareholders) and three independent directors

* Chairman, MD, DMD, Directors (not including those nominated by the Centre) to have term of five years with an option of reappointment of five more years

Published on March 22, 2021

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