The Union cabinet on Tuesday cleared the bill to set up a new Development Finance Institution (DFI), a national bank to fund infrastructure and developmental activities. The setting up of the new DFI was announced during the Union budget by Finance Minister Nirmala Sitharaman in February.
The Central government will be infusing Rs 20,000 crore in the DFI. A slew of infrastructural announcements have been proposed for the next financial year in Budget 2021.
"Past attempts to have alternative investment funds were taken up, but for various reasons, we ended up with no bank which could take up long-term risk (which is very high) and fund development. The Union cabinet has cleared the setting up of a Development Finance Institution, in acknowledgement of the realisation that both development and financial objectives will matter for setting up a DFI," Sitharaman told media reporters in New Delhi on Tuesday.
The infrastructure financier will anchor the ambitious National Infrastructure Pipeline (NIP). About 7,000 projects have been identified under the NIP with a projected investment of a whopping Rs 111 lakh crore during 2020-25.
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After the financing, the DFI will play a key developmental role in developing bond markets for infra funding. The institution will provide patient capital for infrastructure projects at an affordable cost. As part of its development role, the DFI will coordinate with central and state governments, domestic and foreign investors to facilitate development of infrastructure projects.
During the pre-liberalised era, India had DFIs, which were primarily engaged in development of industry in the country. ICICI and IDBI, in their previous avatars, were DFIs. Even the country''s oldest financial institution, IFCI Ltd, acted as a DFI.
In India, the first DFI was operationalised in 1948 with the setting up of the Industrial Finance Corporation of India (IFCI). Subsequently, the Industrial Credit and Investment Corporation of India (ICICI) was set up with the backing of the World Bank in 1955.
The Industrial Development Bank of India (IDBI) came into existence in 1964 to promote long-term financing for infrastructure projects and industry.
