What is the news?
The Union Cabinet approved a bill to set up a Development Finance Institution(DFI). It will be called National Bank for Financing Infrastructure and Development (NaBFID).
About National Bank for Financing Infrastructure and Development (NaBFID):
- Owned by: Initially, the Government of India will own it with a 100% stake. It will gradually be brought down to 26% in a few years.
- Purpose: It will provide finance for social and economic infrastructure projects identified under the National Infrastructure Pipeline(NIP).
- Managed by: A professional board with at least 50 percent of the members as non-official directors.
- Capital Infusion: The capital infusion by the Government will be Rs 20,000 crore with an initial grant of Rs 5,000 crore. It is then expected to raise around Rs 3 lakh crore in the next few years by Market funds.
- Tax Exemption: The government will provide a 10-year tax exemption to funds invested in the DFI. It will attract long-term players such as insurance and pension funds.
What is a Development Finance Institution(DFI)?
- DFI is an agency that finances infrastructure projects of national importance.
- In most cases, these agencies are government-owned. Their borrowings enjoy the government guarantees which help bring down the cost of funding.
- DFI in India: The first DFI in India was the Industrial Financial Corporation of India(IFC) that was launched in 1948. The IDBI, UTI, NABARD, EXIM Bank, SIDBI, NHB were the other major DFIs. Most of them were later converted into banks.
Source: The Hindu