Centre to set up Development Financial Institution to boost infrastructure sector

In the budget presented in Lok Sabha on Monday, Finance Minister Nirmala Sitharaman announced the creation of a new Development Financial Institution (DFI) for which the Centre has allocated Rs 20,000 crore. She proposed a bill for the same.

“Infrastructure needs long-term debt financing. A professionally managed Development Financial Institution is necessary to act as a provider, enabler, and catalyst for infrastructure financing,” Sitharaman said. 

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The Centre will set up National Bank for Financing Infrastructure and Development and will have a lending target of Rs 5 lakh crore within three years, Sitharaman said in her speech. This dedicated bank will work as a catalyst for infrastructure financing.

According to the finance minister, debt financing through the infrastructure investment trust (InvIT) and real estate investment trust (REIT) routes will be enabled through necessary amendments in the rules.

Since the commercial banks in the country are facing a non-performing asset (NPA) problem, they usually maintain a safe distance from these long term projects due to uncertainty around them.

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DFIs are specialised development organisations that are usually set up by the national governments and invest in private sector projects in low and middle-income countries to promote job creation and sustainable economic growth.  

Focusing on physical and financial infrastructure, Sitharaman also announced that Rs 5,000 crore of road infrastructure will be transferred to National Highways Authority of India and Rs 7,000 crore of transmission assets will be transferred to Power Grid Corporation of India.