Parliament passes bill to set up NaBFID

The bank will support the development of long-term non-recourse infrastructure financing in India.

New Delhi: Parliament on Thursday passed a bill to set up the National Bank for Financing Infrastructure and Development (NaBFID) to fund infrastructure projects in the country, with Finance Minister Nirmala Sitharaman asserting that its audited accounts will be placed before both the Houses every year and they will have “oversight” of the institution.

Rajya Sabha passed the National Bank for Financing Infrastructure and Development (NaBFID) Bill, 2021 by voice vote on Thursday. The bill was passed in Lok Sabha on Tuesday.

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Participating in a debate on the bill, some members raised the issue of lack of parliamentary oversight of the institution and demanded that the proposed legislation be sent to a select committee for scrutiny.

Replying to the debate, Finance Minister Nirmala Sitharaman explained, “Every year audited accounts (of this bank) will come to each House of Parliament….so Parliament oversight (of the institution) is in-built in the bill.”

The development finance institution, called the National Bank for Financing Infrastructure and Development (NaBFID), will be answerable to Parliament.

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

Sitharaman explained that a five-year tax break is provided to private development finance institutions under the bill to ensure enhanced flow of funds and, thereafter, they should be smart enough to become competent.

“The Act (bill) gives space to private institutions to come up for which we give tax benefits for first five years and for this institution (NaBFID), we are giving tax benefits for 10 years,” she told the House.

She further told the House, “We have provided an authorised capital of Rs 10 lakh crore. Rs 20,000 crore has been given as equity and Rs 5,000 crore has been given as grant.”

“Sovereign guarantee has been provided. This institution will be able to access the line of credit from RBI,” she said.

It will lend for infra projects and more importantly, it will establish a credible framework for both equity and debt investment.
This is not just for building roads and bridges but is also for social infrastructure like hospitals and schools, she added.

She said that development finance is highly risky and takes a long time as gestation periods are long, and it also needs a higher credit cost to be included.

“It will attract investment from both domestic and global institutional investors as we as domestic retail investors. We are not depending on just FDIs,” she told the House.

About the ownership of NaBFID, she said, “The government’s stake will start from 100 per cent but eventually long time later it will be brought down to 26 per cent. But, there will always be 26 per cent presence of the government at all times. It will be professionally run and the government will only appoint the chairman. Other appointments will be done by the Banks Board Bureau and not by the government.”

She stressed that all the safeguards have been provided in the bill.

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