Development Finance Institutions (DFIs) play a crucial role in India’s economic growth by providing long-term funding, technical assistance, and credit support for infrastructure and industrial projects, with institutions like IIFCL and NaBFID driving major investments in highways, energy, ports, and other critical sectors.
Over time, DFIs have evolved, with NaBFID emerging as a key player, offering long-term financing solutions and attracting private investment to foster sustainable infrastructure development.
Role Of DFIs In Economic Development
- Key Drivers of Growth: Development Financial Institutions (DFIs) play a crucial role in promoting economic development by financing infrastructure projects.
- Financial and Technical Support: These institutions provide long-term financial support and technical assistance across various sectors.
- Infrastructure and Housing Credit: DFIs enhance access to credit for infrastructure and housing projects, encouraging greater lending towards these vital areas.
- Sectoral Contributions: DFIs contribute to economic growth by supporting industrial expansion, improving infrastructure, and aiding small and medium-sized enterprises (SMEs).
Evolution Of DFIs In India
- Early Establishment: The first DFIs were founded between the 1950s and 1960s, including the Industrial Financial Corporation of India (IFCI), Industrial Credit and Investment Corporation of India (ICICI), and Industrial Development Bank of India (IDBI).
- Transition to Commercial Banks: Over time, several DFIs, including IFCI and IDBI, converted into commercial banks, reducing the number of institutions catering to industrial and infrastructure financing.
- New Institutions for Infrastructure Financing: Organizations such as Infrastructure Development Finance Company (IDFC) (1997), India Infrastructure Finance Company Limited (IIFCL) (2006), and the National Bank for Financing and Infrastructure Development (NaBFID) (2021) were created to address infrastructure funding needs.
IIFCL’s Role In Infrastructure Financing
- A Leading Public Sector Infrastructure Lender: Over the past 18 years, IIFCL has played a crucial role in financing India’s infrastructure projects, offering one of the most diversified lending portfolios.
- Broad Financing Scope: It provides funding for both green-field and brown-field projects through direct lending, takeout finance, refinancing, and credit enhancement, as specified in the Harmonised Master List of Infrastructure Subsectors.
- Extensive Project Sanctions: As of September 2024, IIFCL had approved co-financing for more than 780 projects, amounting to ₹13.9 lakh crore, including over 500 public-private partnership (PPP) projects, which account for 28% of India’s total PPP projects.
- Loan Portfolio Overview: The cumulative sanctions and disbursements by IIFCL exceed ₹2.8 lakh crore and ₹1.4 lakh crore, respectively, while its outstanding loan book stands at ₹58,995 crore.
- Infrastructure Contributions: IIFCL has sanctioned loans for projects involving:
- 31,000 km of highways, constituting 22% of India’s national highway capacity.
- 95 GW of installed energy capacity, which represents 23% of the country’s total installed capacity.
- 22 GW of installed renewable energy capacity, making up 11% of India’s total renewable capacity.
- 880 million tonnes of port capacity, which accounts for 35% of the country’s total port capacity.
Establishment And Objectives Of NaBFID
- Need for a Dedicated Long-Term Lender: Recognizing the necessity of a comprehensive sectoral mandate for infrastructure financing, NaBFID was established under the NaBFID Act, 2021.
- Regulatory Recognition: The Reserve Bank of India (RBI) granted NaBFID the status of an ‘All India Financial Institution’ (AIFI) on 8 March 2022, making it the fifth such institution alongside NABARD, SIDBI, NHB, and Exim Bank.
- Dual Objectives:
- Financial Objective: NaBFID aims to directly or indirectly finance and invest in infrastructure projects while attracting private sector and institutional investments to foster sustainable economic growth.
- Developmental Objective: The institution collaborates with central and state governments, regulators, financial institutions, and investors to strengthen infrastructure financing and policy coordination.
NaBFID’s Financial Commitments and Future Roadmap
- Sanctioned Loans: By 30 September 2024, NaBFID had approved loans amounting to ₹1.3 lakh crore, with over three-fourths of these loans directed towards the road and energy sectors, including renewable energy.
- Identified Project Pipeline: NaBFID has planned investments across key infrastructure sectors, such as roads, power generation, renewables, railways, ports, transmission and distribution networks, data centers, as well as social and commercial sectors like hospitals and ropeways.
- Loan Disbursement Target: The institution aims to sanction cumulative loans exceeding ₹3 lakh crore by the end of FY26.
- Flexible Loan Offerings: It provides infrastructure developers with long-tenor loans ranging from 15 to 25 years, longer reset periods of 3 to 5 years, and fixed interest rate loans for durations up to 25 years, helping them manage risks associated with interest rate fluctuations.
Source: Economic Survey 2024-25