The government plans to set up a Development Finance Institution (DFI) in the next three to four months with a view to mobilise Rs 111 lakh crore required for funding of the ambitious national infrastructure pipeline, according to Financial Services Secretary Debasish Panda.
"We need a development financial institution as infra financing needs patient capital, and banks are currently not suited for lending for long term projects which do not generate any cash for years," he told PTI in an interview. Even deepening the bond market with regard to infrastructure financing is a matter which is receiving attention of the government and there is a need to do something more in order to have a robust bond market for infrastructure financing, he said.
"To provide funding, to enhance credit rating of projects, a DFI is needed, and we are actively working on it, and soon such an institution will be in place. We are in the process of finalising details such as shareholding of the government and whether such a body will be formed through a statute.
"The DFI will be a catalyst, and would fund projects where others are not willing to enter because of the risks involved," he said. Further, Panda said the work is in progress and the DFI should become a reality soon, may be by the end of the current financial year or early next year.
In her last Budget speech, Finance Minister Nirmala Sitharaman had proposed to set up DFIs for promoting infrastructure funding. About 7,000 projects have been identified under the National Infrastructure Pipeline (NIP) with projected investment of a whopping Rs 111 lakh crore during 2020-25.
NIP, a first-of-its-kind initiative to provide world-class infrastructure across the country and improve the quality of life for all citizens, will be crucial for attaining the target of becoming a $5 trillion economy by FY 2025. The DFI, Panda said, will have a key developmental role apart from the financing role. "All kinds of innovating financial mechanisms is what this new institution will be expected to do," he said.
During the pre-liberalised era, India had DFIs which were primarily engaged in development of industry in the country. ICICI and IDBI, in their previous avatars, were DFIs. Even the country's oldest financial institution IFCI Ltd had acted as a development finance institution.
In India, the first DFI was operationalised in 1948 with the setting up of the Industrial Finance Corporation (IFCI). Subsequently, the Industrial Credit and Investment Corporation of India (ICICI) was set up with the backing of the World Bank in 1955. The Industrial Development Bank of India (IDBI) came into existence in 1964 to promote long-term financing for infrastructure projects and industry.
Talking about the financial health of banks, Panda said that 11 out of the 12 public sector banks have posted profits as on September 30, 2020. Even gross Non-Performing Assets (NPAs) have gone down substantially and the provision coverage ratio has increased, he noted. "There is scope for improvement on return on assets and banks are working on that. By and large, all the financial parameters are showing positive results," he said.