NEW DELHI: Finance Minister Nirmala Sitharaman’s Budget, to be presented in the Lok Sabha on Monday, is likely to announce a dedicated bank for financing infrastructure development projects.
The proposed bank will be incorporated through a special law, the National Bank for Financing Infrastructure and Development Bill, which Parliament is likely to pass in the Budget session.
The bill describes the dedicated bank as “a provider, enabler and catalyst for infrastructure financing”.
The development bank will provide low-cost funding for large, long-term infrastructure projects. The government mooted setting up such a bank given the unique financing requirement of the infrastructure sector, which is quite different from general industry.
Infra loans are typically taken on a long-term basis as these projects take 15-25 years to be executed
However, years of piled up bad loans, nature of uncertainty and delays around the infrastructure projects have made the sector untouchable for banks, which have been maintaining an arm’s distance from the sector, resulting in lack of easy financing for projects.
Hence, the long-pending demand to set up a separate financing authority for the sector such that projects are not scuttled owing to paucity of funds.
The proposed bank would be the principal financial institution and development bank for building and sustaining a supportive ecosystem across the lifecycle of infrastructure projects.
Similar attempts were made in the past as well. The Industrial Credit and Investment Corporation of India (ICICI) Bank and the Industrial Development Bank of India (IDBI) were set up for financing industrial loans. However, the ICICI and IDBI later established themselves as full-fledged commercial banks.
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Provider, enabler & catalyst
The proposed bank would be a catalyst for infrastructure financing as the sector has been given a wide berth by banks owing to years of piled up bad loans, nature of uncertainty and delays around the projects.