NEW DELHI: Finance Minister Nirmala Sitharaman on Tuesday said the development finance institution (DFI) being set up to fund the infrastructure sector will remain outside the purview of the CAG, CVC and CBI, a move aimed at enabling faster decision-making.
The DFI, called the National Bank for Financing Infrastructure and Development (NaBFID), however is going to be answerable to Parliament.
The Lok Sabha later passed the National Bank for Financing Infrastructure and Development (NaBFID) Bill 2021 with voice vote.
Replying to the debate on the Bill, the finance minister said, "It will be absolutely answerable to the Parliament. So we are not going to one extreme. Where there is no oversight at all, but that heavy fear of taking decisions as a result of overlapping oversight is now being given space wherein legitimate commercial decisions can be taken professionally."
Market watchers say genuine bonafide decisions in the banking sector are being impacted because of the worry of undue harassment by the '3Cs -- Central Bureau of Investigation (CBI), Central Vigilance Commission (CVC) and Comptroller and Audit General (CAG).
Sitharaman also clarified that the government will be able to give sovereign guarantee even if its stake reduces to 26 per cent because it is not linked to stake but to the legislation.
The government intends to bring down its stake in NaBFID from 100 per cent to 26 per cent once the institution stabilises.
She also said the government will provide Rs 5,000 crore as grant and Rs 20,000 crore equity capital.
This government-owned development finance institution will help fund about 7,000 infra projects under the National Infrastructure Pipeline (NIP).
The legislation will give effect to the Budget announcement made by the finance minister on February 1.
The government has proposed Rs 20,000 crore to capitalise the institution.
The Union Cabinet had last week approved the Budget proposal of setting up the DFI, which will have tax benefits to enable fund raising from investors.
The government expects the DFI to leverage this fund to raise up to Rs 3 lakh crore in the next few years.
The Bill seeks to establish the NaBFID to support the development of long term non-recourse infrastructure financing in India, including development of the bonds and derivatives markets necessary for infrastructure financing.
As per the statement of objects and reasons of the Bill, it seeks to enable the central government, multilateral institutions, sovereign wealth funds, and such other institutions to hold equity in the NaBFID.
It proposes to enable the institution to provide financial assistance to infrastructure projects located in India or partly in the country and to enable the company to borrow or raise money by way of loans both in rupees and foreign currencies.
It also provide adequate safeguards for decision making to address risk aversion and proposes establishment of other development financial institutions, in addition to the NaBFID established under the proposed legislation.
"The Institution shall have both developmental and financial objectives. Among other things, this would include developing a deep and liquid bond market of international standards for long-term infrastructure financing in India including through widening of the issuer and investor base," it said.
It would also facilitate the development of markets for interest rate derivatives, credit derivatives, currency derivatives and such other innovative financial instruments as may be necessary for infrastructure financing, it said.
"The financing objectives would involve establishing a credible framework that attracts equity investments from domestic and global institutional investors as well as debt investments, including green finance, from investors, aligned to their risk appetite and asset-liability profile, in order to cater the financing needs of Indian infrastructure sector," it said.
The government will provide the institution with grants and contributions, guarantees at concessional rates for foreign borrowings and any other concessions, the Bill said, adding that dilution or sale of stake may be considered once the NaBFID has achieved stability and scale.
The Bill proposes to establish the head office of the institution in Mumbai and permits to form subsidiaries or joint ventures or branches, in India or outside.
The Centre would hold at least 26 per cent of the shares at all times, it said, adding concessional rate of fees should not exceeding 0.1 per cent for government guarantee.
The performance of the institution would, once in every five years, be reviewed by an external agency to be appointed by the central government, it said.
In her Budget 2019-20 speech, Sitharaman had proposed a study for setting up DFIs for promoting infrastructure funding.
About 7,000 projects have been identified under the National Infrastructure Pipeline (NIP) with a projected investment of Rs 111 lakh crore during 2020-25.
NIP, a first-of-its-kind initiative to provide world-class infrastructure across the country and improve the quality of life for all citizens, will be crucial for attaining the target of becoming a USD 5 trillion economy by FY 2025.