ECONOMIC SURVEY: CHAPTER 2

MONETARY & FINANCIAL SECTOR DEVELOPMENTS IN INDIA (PART 2)

Role of Development Financial Institutions (DFIs)
  • Economic Progress: DFIs are key players in supporting economic progress by promoting economic expansion through funding infrastructure developments.
  • Financial and Technical Aid: These institutions provide financial and technical aid (expert advice and assistance) across various sectors, including reports on projects, feasibility studies (analysis to assess the viability of a project), and advisory services.
  • Credit Access: By enhancing access to credit (the ability of businesses or individuals to obtain loans), DFIs encourage more loans for critical areas like infrastructure and housing projects.
  • Long-Term Funding: DFIs offer long-term funding for key sectors, supporting economic growth, industrial expansion, infrastructure development, and the growth of small and medium-sized businesses (SMEs).

HISTORICAL CONTEXT

Early DFIs: The initial DFIs were established

between the 1950s and 1960s and included:

  • Industrial Financial Corporation of India (IFCI) (a government financial institution for industrial funding),
  • Industrial Credit and Investment Corporation of India (ICICI) (a major financial institution providing credit and investment services),
  • Industrial Development Bank of India (IDBI) (an institution focused on industrial development).
Transformation: Over time, these DFIs transformed into universal banks (banks offering a wide range of financial services, such as commercial banking, investment, and asset management) or commercial banks, resulting in fewer institutions. WHICH ARE THE RECENT INSTITUTIONS? Recent institutions such as:
  • Infrastructure Development Finance Company (IDFC) (a financial institution for infrastructure development),
  • India Infrastructure Finance Company Limited (IIFCL) (a company focused on infrastructure funding),
  • National Bank for Financing and Infrastructure Development (NaBFID) (a dedicated bank for infrastructure development) were created to fund infrastructure development.

INDIA INFRASTRUCTURE FINANCE COMPANY LTD. (IIFCL)

  • Infrastructure Support: IIFCL has played a key role in supporting India’s infrastructure development over the last 18 years.
  • Diversified Lender: As a long-term financing institution, IIFCL is one of the most diversified public sector infrastructure lenders.
  • Sectoral Impact: IIFCL's sanctioned projects have contributed to:
    • 31,000 km of highways (22% of India’s National Highways (NH) capacity),
    • 95 GW of installed energy capacity (23% of India’s total energy capacity),
    • 22 GW of renewable energy capacity (11% of India’s total renewable energy capacity),
    • 880 million tonnes of port capacity (35% of India’s total port capacity).

NATIONAL BANK FOR FINANCING & INFRASTRUCTURE DEVELOPMENT (NABFID)

  • Establishment: NaBFID was established through the NaBFID Act, 2021 (the legislation that created NaBFID as a specialized bank for infrastructure).
  • AIFI Status: NaBFID received ‘All India Financial Institution (AIFI) status from the Reserve Bank of India (RBI) on March 8, 2022, making it the 5th AIFI after:
    • NABARD (National Bank for Agriculture and Rural Development),
    • Small Industrial Development Bank of India (SIDBI) (a financial institution for small businesses),
    • NHB (National Housing Bank),
    • Exim Bank (Export-Import Bank of India).

OBJECTIVES OF NaBFID?

  • Financial Objective: To lend or invest directly or indirectly and to attract investment from private and institutional investors for infrastructure projects.
  • Developmental Objective: To work with the central and state governments, regulators, financial institutions, institutional investors, and other stakeholders.
  • Loan Sanctions: By September 30, 2024, NaBFID had sanctioned ₹1.3 lakh crore in loans, with the road and energy sectors, including renewable energy, accounting for over three-fourths of loans.
  • Project Pipeline: NaBFID has identified a pipeline of projects across multiple sectors:
  • Roads, power generation, renewables, railways, ports, transmission and distribution, data centers, and social sectors (hospitals, public services like education).