The government expects the DFI to boost the maximum amount like Rs 3 lakh crore over the subsequent few years, leveraging the proposed initial capital of Rs 20,000 crore, minister of finance Nirmala Sitharaman said after the cupboard meeting. the cupboard on Tuesday cleared a Bill to line up a government-owned development finance institution (DFI) and make an enabling ecosystem to draw patient capital and fund long-term infrastructure projects.
The government expects the DFI to boost the maximum amount like Rs 3 lakh crore over the subsequent few years, leveraging the proposed initial capital of Rs 20,000 crore, minister of finance Nirmala Sitharaman said after the cupboard meeting.
Initially, the govt will fully own the DFI but, as more investors take part, it’s willing to dilute its equity to 26%.
The Bill is predicted to be introduced during this session of Parliament for clearance. Given that raising cheaper resources for lending to infrastructure projects at reasonable rates remains critical to the DFI’s long-term viability, the govt will grant it certain tax benefits for 10 years. The Indian Stamp Act also will be amended to increase certain other incentives. On top of those, the DFI is expected to have a sovereign guarantee to garner resources (possibly from multilateral agencies).
Analysts have said India needs broad-ranging institutional and regulatory reforms, and not just a DFI, to bolster the bond market, the dimensions stand at only about 15-16% of GDP. Nevertheless, the DFI proposal, backed by the deft implementation, might be one among the important steps therein direction, they concur.
The move to enable the DFI to possess access to low-cost funds comes amid the realization that since banks have access to CASA (current account savings accounts) deposits, their cost of funds goes to be cheaper than the DFI’s. So, the DFI has got to be granted some flexibilities to remain competitive. Else, as witnessed within the past (DFIs like IDBI and ICICI were forced to morph into banks), it’ll struggle to remain afloat.
The DFI is envisaged to play a catalytic role in funding projects under the Rs 111-lakh-crore National Infrastructure Pipeline and help the country become a $5 trillion economy by 2025.
To draw the simplest available talents, the govt is getting to offer market-driven emoluments to the highest executives of the DFI. At an equivalent time, the tenure of the director or deputy director might be longer and therefore the regulation can also be enhanced to draw in established professionals with substantial experience within the field to hitch in.
The DFI will have ambitious goals and, unlike extant institutions like IFCI or IIFCL (the latter is now an NBFC), its role will stretch well beyond the realm of mere project financing.
The DFI model had to be revived, because the ability of banks, especially the state-run ones, to fund long-gestation infrastructure projects and spur growth remains severely impaired by a spike in bad loans. As such, banks’ liability profile isn’t fitted to long-term funding, as they’re typically tailored for extending capital loans with a brief tenure. So, even once they fund infrastructure projects, the tenure often remains short to start out with, with a rollover facility at a renewed rate of interest.
Also, unlike a DFI, banks lack the domain expertise needed to grasp the complex nuances of financing also as monitoring a good range of infrastructure projects.