NATIONAL BANK FOR FINANCING INFRASTURCTURE AND DEVELOPMENT BILL, 2021
Maharashtra National Law University, Mumbai
Recently, the Parliament of India passed a very important bill titled The National Bank for Financing Infrastructure and Development Bill, 2021. It was introduced in the Lok Sabha on March 22, 2021, seeking to establish the National Bank for Financing Infrastructure and Development (NBFID) as the principal Development Financial Institutions (DFIs) for infrastructure financing. DFIs are created to provide long-term financing to parts of the economy where the risks are too high for commercial banks and other traditional financial institutions to handle.
DFIs, unlike banks, do not accept deposits from individuals. They raise money from the market, the government, and multilateral organizations, and are frequently backed by government guarantees. Hence the NBFID will be instituted to support the development of long-term non-recourse and infrastructure financing which includes the development of the bonds and derivatives markets necessary for infrastructure financing and to carry on the business of financing infrastructure and for matters connected therewith or incidental thereto.
The bill received the President’s assent on March 28, 2021. As such, the NBFID will have both financial as well as developmental objectives. The primary developmental objective of the Institution is to coordinate with the Central and State Governments, regulators, financial institutions, institutional investors and such other relevant stakeholders, in India or outside India, to facilitate building and improving the relevant institutions to support the development of long-term non-recourse infrastructure financing in India including the domestic bonds and derivatives markets.
Secondly, the financial objective of the Institution is to lend or invest, directly or indirectly, and seek to attract investment from private sector investors and institutional investors, in infrastructure projects located in India, or partly in India and partly outside India, with a view to foster sustainable economic development in India.
Summarily, there are 10 basic functions of the NBFID, which are:
- form and manage subsidiaries or joint ventures or branches, in India or outside India;
- co-ordinate its operations in the field of infrastructure finance and maintain expert staff to study problems relating to infrastructure finance and be available for consultation to the Central Government, the Reserve Bank and the other institutions engaged in the field of infrastructure finance;
- set up trusts under the Indian Trusts Act, 1882 for establishment of funds for such nature as would assist in financing of infrastructure projects located in India;
- support the development of a deep and liquid market for bonds, loans and derivatives;
- lend and invest in infrastructure projects located in India, or partly in India and partly outside India;
- extend loans and advances for the purposes of providing financial assistance;
- take over or refinance existing loans extended by a lender for infrastructure projects located in India, or partly in India and partly outside India;
- transfer loans and advances granted by it, with or without the securities, to trusts, for consideration;
- set aside loans or advances held by the Institution and issue and sell securities based upon such loans or advances so set aside in the form of debt obligations, trust certificates of beneficial interest or other instruments, by whatever name called, and act as a trustee for the holders of such securities;
- assign securities issued to the Institution; etc.
To be able to perform these functions efficiently, the Institution will get its money in the form of loans or otherwise both in Indian rupees and foreign currencies or secure money by the issue and sale of various financial instruments including bonds and debentures. As such, the NBFID may borrow money from:
- Central Government,
- Reserve Bank of India (RBI),
- scheduled commercial banks,
- mutual funds, and
- multilateral institutions such as the World Bank and Asian Development Bank.
In addition to the same, 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 guarantee at a concessional rate of up to 0.1% for borrowing from multilateral institutions, sovereign wealth funds, and other foreign funds. Costs towards insulation from fluctuations in foreign exchange (in connection with borrowing in foreign currency) may be reimbursed by the government in part or full. Upon request by NBFID, the government may also guarantee the bonds, debentures, and loans issued by NBFID.
As it is a premiere Institution which will have a significant amount of responsibility, the NBFID has a well-thought-out system of management. It will primarily be governed by a Board of Directors. The members of the Board include:
- the Chairperson appointed by the central government in consultation with RBI,
- a Managing Director,
- up to three Deputy Managing Directors,
- two directors nominated by the central government,
- up to three directors elected by shareholders, and
- a few independent directors (as specified).
As for the appointment of the prime members of the Board, a body constituted by the central government will be tasked with the responsibility to recommend candidates for the post of the Managing Director and Deputy Managing Directors. Subsequently, the Board will appoint independent directors, the choice of whom will be based on the recommendation of a separate internal committee.
As a bonus, as is the case with all public institutions and officials, no investigation can be initiated against employees of NBFID without the prior sanction of:
- the central government in case of the chairperson or other directors, and
- the managing director in case of other employees.
Courts will also require prior sanction for taking cognizance of offences in matters involving employees of NBFID.
Another interesting feature is that the Bill also provides for any person to set up a DFI by applying to RBI. RBI may grant a license for DFI in consultation with the central government. The RBI has been granted the power to prescribe relevant and appropriate regulations for these DFIs.
Thus, with a globalized scheme of economic progress in mind, this it bill a very important step in the same direction. It will help both the PSUs as well as a lot of private entities to further their business prospects and add to the GDP of the country and will significantly increase the overall growth of the economy.