DFI to get direct access to RBI Funding Facilities

The National Bank for Financing Infrastructure and Development Bill, 2021 was introduced in the Lok Sabha on March 22, 2021. Under the bill, the government will soon set up a “National Bank for Financing Infrastructure and Development”. This bank will also get government guarantee support as well as the direct access to liquidity from the apex bank RBI with the objective of kick-start infrastructure financing in the country.

Key Provisions of the Bill

The bill seeks to set up the government backed Development Finance Institution (DFI). It will also be allowed for the private infrastructure financiers after getting the approval of Reserve Bank of India (RBI). The bill further provided that, to help the 100 percent government owned organisation to raise low-cost funds in the initial phases, the borrowings can be guaranteed by the government.  The Central Government can guarantee the bonds, debentures & loans after the request of Institution. The guarantee will be provided at the concessional rate and it shall not exceed 0.1 percent.

Funding Facilities to DFI

As per the provisions of the bill, the government will also guarantee the bonds, debentures & loans to the DFI to borrow from the multilateral institutions, sovereign wealth funds, and other foreign institutions. Under the provisions, the DFI will get direct access to the funding facilities of the Reserve Bank of India. It will also be able to borrow money from the apex bank “against bills of exchange or the promissory notes coming out of the bona fide commercial or trade transactions which are maturing within five years from the date of the borrowing.

Development Finance Institution (DFI)

DFI is also called as the development bank or development finance company (DFC). It is a financial institution which gives the risk capital for the economic development projects on the non-commercial basis. It plays a crucial role to finance the private and public sector investments in the developing countries. It provides financing in the form of higher risk loans, guarantees and equity positions.

Month: Current Affairs - March, 2021