NEW DELHI: The Union Cabinet has cleared the setting up of a Development Finance Institution (DFI) with a capital infusion of Rs 20,000 crore, announced Finance Minister Nirmala Sitharaman on Tuesday.
"During the Union Budget, we had mentioned that we will be setting up a national bank to fund infrastructure and developmental activities. 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. Following this, Union Cabinet has cleared the setting up of a Development Finance Institution (DFI), in acknowledgement of the realisation that both development and financial objectives will matter for setting up a DFI," said Sithraman while addressing a press conference.
Earlier, Sitharaman attended the meeting of the Cabinet Committee of Economic Affairs (CCEA).
"DFI will help raise long-term funds; the Union Budget of 2021 will provide an initial amount. The capital infusion will be of about Rs 20,000 crore this year; the initial grant will be Rs 5,000 crore, additional increments of the grant will be made within limit of Rs 5,000 crore," the Finance Minister said.
"Union government is also planning to issue some securities to Development Finance Institution, by which cost of funds will come down. All this will help DFI leverage initial capital and draw funds from various sources; will also have a positive impact on the bond market in India," she said.
On February 1, Sitharaman had announced that the central government will set-up a "professionally managed" DFI capitalised with Rs 20,000 crore, aiming to have a lending portfolio of at least Rs five lakh crore within three years time.
While presenting the budget 2021-22, Sitharaman had said that the government would introduce a bill in the budget session of Parliament to set up a new DFI.
"The National Infrastructure Pipeline which I had announced in December 2019 is a first of its kind. The NIP was launched with over 6,835 projects, now it has expanded to over 7,400 projects. Around 217 projects worth Rs 1,01 lakh crore have been completed," she said.