DFI To Get Support From Government Guarantee, RBI Windows — BQ Exclusive

The National Bank For Financing Infrastructure and Development Bill, 2021 was introduced in the Lok Sabha on Monday. A copy of the bill has been reviewed by BloombergQuint. In addition to setting up the government backed Development Finance Institution, the bill also allows for private infrastructure financiers with the approval of the RBI.

Government Guarantee Support

In order to help the organisation, which will be 100% government owned at the start, raise low cost funds, its borrowings can be guaranteed by the government, the Bill says.

“The Central Government may, on a request being made to it by the Institution, guarantee the bonds, debentures and loans issued by the Institution as to the repayment of principal and the payment of interest at such rate, terms and conditions as may be agreed by the Central Government.”

The guarantee will be provided at a concessional rate, not exceeding 0.1%. This guarantee may be extended to the DFI for borrowings from multilateral institutions, sovereign wealth funds, and such other foreign institutions as may be prescribed, the bill says.

Hedging costs in connection with any borrowing of foreign currency may be reimbursed by the Central Government in part or in full, it added.

Special RBI Window

Unlike other non-bank financial companies, the DFI will get direct access to the Reserve Bank of India’s funding facilities.

The bill states that the DFI will be permitted to “borrow money from the Reserve Bank repayable on demand or on the expiry of fixed periods not exceeding ninety days....” These short term funds can be “borrowed against the security of stocks, funds or securities (other than immovable property) in which a trustee is authorised to invest trust money by any law for the time being in force in India.”

The DFI will also be able to borrow money from the Reserve Bank “against bills of exchange or promissory notes arising out of bona fide commercial or trade transactions maturing within five years from the date of the borrowing.”

Business Of The DFI

The DFI shall lend or invest, directly or indirectly in infrastructure projects located in India, or partly in India and partly outside India, “with a view to foster sustainable economic development in India.” It may also refinance existing loans and set up investment trusts.

It will also coordinate with the central and state governments, regulators, financial institutions, institutional investors and others to support the development of long-term non-recourse infrastructure financing in India.

It can acquire shareholding in other infrastructure financing and development agencies.

The DFI can borrow funds locally or in the overseas market via loans or debt securities. It can apply for and receive funds from multilateral agencies like the World Bank, the Asian Development Bank, New Development Bank among others.

The authorised share capital of the DFI is set at Rs 1 lakh crore. The government will hold at least 26% of the shares in the institution at all times.

Finance Minister Nirmala Sitharaman, at the time of the Union Budget presentation, said the government will provide Rs 20,000 crore for the institution. The institution will raise up to Rs 3 lakh crore for lending purposes, Sitharaman has said.

Management Structure

As detailed by the government earlier, the DFI will have a professional management. The chairman will be appointed by the government, in consultation with the Reserve Bank for an initial term of five years. The term can be extended up to a maximum of ten years.

• The managing director will be appointed by the board at the recommendation of a bureau set up by the government.
• The organisation will have not more than three deputy managing directors, each of whom shall be appointed by the board, on the recommendations of the bureau.
• Two directors on the board will be nominated by the central government, who shall be the officials of the central government.
• Shareholders, other than the government, holding 10% of more of the total issued equity share capital may nominate one director each, not exceeding a total of three directors.
• The board will have independent directors not exceeding three or one-third of the total number of directors on the Board, whichever is higher.

Remuneration for the management will be market-based, the Finance Minister has said.

Improved Protection From Prosecution

The bill seeks to provide greater protection to DFI officials.

No investigation agency, including CBI, SFIO among others shall conduct any enquiry or investigation into any offence without the previous approval of the Central Government, where the offence is alleged have to been committed by the Chairperson or other directors, the bill said. The approval of the managing director is needed where the offence is alleged to have been committed by an employee or officer of the Institution.

No such approval shall be necessary for cases involving arrest of a person on the spot on the charge of accepting or attempting to accept any undue advantage for himself or for any other person, the bill added.