NEW DELHI: The proposed development finance institution (DFI) should attract foreign capital to fund infrastructure spending rather than following the old model of government support for sustenance, State Bank of India (SBI) Chairman Dinesh Khara said on Tuesday.
The government is actively considering setting up a DFI to meet the financing needs of the infrastructure sector, which according to the National Infrastructure Pipeline requires massive funding of Rs 111 lakh crore over the next five-year period ending 2024-25.
"Even if the DFI comes in, the source of funds for DFI perhaps will have to be more international in colour as compared to what it used to be in the earlier avatar of DFIs where they were getting all their money from the government," Khara said at virtual conference organised by CII.
Given the huge requirement of funds for infrastructure development, foreign funds would be required very much, he noted.
ICICI and IDBI in their previous avatars were DFIs.
Even the country's oldest financial institution IFCI Ltd acted as a development finance institution.
In India, the first DFI was operationalised in 1948 with the setting up of the Industrial Finance Corporation (IFCI).
Subsequently, the Industrial Credit and Investment Corporation of India (ICICI) was set up as a DFI 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.
Last week, Economic Affairs Secretary Tarun Bajaj had said a DFI-like entity is needed and there would be some good progress on that front in the months to come.
With regard to making the capital market more vibrant, Khara said there is a need to channelise long-term liabilities with insurance and pension sectors.
Currently, investment by insurance and pension funds are restricted to AAA and AA papers.
They should be allowed to invest in lower rated papers, he said, adding "this is perhaps the need of the hour.
Also, if at all we have to create the infrastructure, we have to ensure that this money flows into infrastructure, which we have seen across the globe."
Speaking at the event, Sanjay Nayar, partner and CEO of KKR India, said this is the right time for setting up of a bad bank.
"Unlock the potential of public sector banks take away public sector character of it but privatise the governance model of the PSU bank (the) distribution and talent that they have is unmatchable.
"So privatise the governance model but not the public sector character of it or the government ownership of it. It can been done. It has been done in Singapore," he said.
JM Financial Ltd's Group Managing Director Vishal Kampani said the next decade will be a period of consolidation.
Large companies will consolidate into much bigger entities and even medium-sized firms will see consolidation, he said.