One thing we now know for sure is in the budget proposals⁠— a new infra lending institution

• This bill primarily proposes a new development financial institution (DFI), “as a provider, enabler and catalyst for infrastructure financing.”
• DFIs are constituted to merge both the commercial viability of a bank along with the fulfilment of societal requirements.
• Industrialists like Ajay Piramal, the owner of the Piramal group, had expressed his desire for a DFI in an exclusive conversation with Business Insider in October 2020.

National Bank for Financing Infrastructure and Development (NaBFID) bill is one of the key bills among that 20 that have been tabled in the Budget session that began yesterday. It is fair to assume the proposal will be part of Finance Minister Nirmala Sitharaman's speech on Monday.

This bill primarily proposes a new development financial institution (DFI), “as a provider, enabler and catalyst for infrastructure financing,” according to the Lok Sabha website. The website further states that the DFI will be the “ principal financial institution and development bank for building and sustaining a supportive ecosystem across the life cycle of infrastructure projects."

This kind of a lending body was one of the demands from the industry for a while now especially since the pandemic⁠— and the pile of bad loans before that⁠— had forced to tighten the flow of credit.

Industrialists like Ajay Piramal, the $2.9 billion owner of the Piramal group, which has interests from glass manufacturing to real estate to financial services, had expressed his desire for a DFI, in an exclusive conversation with Business Insider, way back in October.




What are development financial institutions?

DFIs are constituted to merge both the commercial viability of a bank along with the fulfilment of societal requirements. Basically, they are not solely profit-making institutions, unlike commercial banks. And they give loans for projects which may take as long as 15-25 years to be executed.

DFIs, or developmental banks, is not a new concept. From 1948-1964, three banks were established to provide long-term financing in the industrial sector - Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation of India (ICICI), and Industrial Development Bank of India (IDBI). But in the 1990s, the long term operation (LTO) funds, a concessional funding that was provided by the Reserve Bank of India (RBI), was withdrawn.

This forced these developmental banks to raise financial resources at market-based rates, leading to the inevitable downfall of these banks. And while ICICI and IDBI were converted into full-fledged commercial banks, Industrial Investment Bank of India shut shop altogether.

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