Lok Sabha passes National Bank for Financing Infrastructure and Development Bill 2021

The Lok Sabha on March 23, 2021 passed the National Bank for Financing Infrastructure and Development Bill 2021. 

The bill seeks to establish a statutory institution called the National Bank for Financing Infrastructure and Development to support the development of long-term infrastructure financing in India.

The institution will be set up as the principal development finance institution (DFI) and development bank to carry on the business of infrastructure financing.

The bill was passed by the lower house of the Parliament through a voice vote after Finance Minister Nirmala Sitharaman replied to Bill’s discussion.

Objective of the Bill 

The bill seeks to support the development of long-term non-recourse infrastructure financing in India including the development of the bonds and derivatives markets necessary for infrastructure financing and to carry on the business of financing infrastructure.

Key Features

•The National Bank for Financing Infrastructure and Development will seek to address market failures that stem from the long-term, low margin and risky nature of infrastructure financing.

•The institution will be wholly owned by the central government to foster confidence on its stability and sustainability and to raise resources at competitive rates.

•The Government will provide the financial institution with required grants and contributions, guarantees at concessional rates for foreign borrowings and any other concessions. The guarantee will be provided at a concessional rate, not exceeding 0.1 percent. 

•The Bill paves the way for the private sector to promote DFIs to come to the market after obtaining approval from the RBI.

•The development finance institutions promoted by the private sector will get five-year tax exemption to begin with, which can be extended by another five years.

•Further, the bill states that the developmental financial institution will be permitted to “borrow money from the RBI repayable on-demand or on the expiry of fixed periods not exceeding ninety days”.

•The DFI will also be able to borrow money from RBI against bills of exchange or promissory notes arising out of bona fide commercial or trade transactions.

Background

The Union Cabinet had last week approved the setting up of a developmental financial institution with a capital infusion of Rs 20,000 crore.