New Delhi: To enable institutions of higher education in the country achieve financial autonomy, fund more research and improve infrastructure, the Union government on Thursday signed an agreement with Canara Bank to set up a non-banking financial company (NBFC).

Called the Higher Education Finance Agency (HEFA), the joint venture between the human resource development (HRD) ministry and the bank will start lending to institutions from May-June.

“This the beginning of a new initiative to address the growing demand of finance for the higher education sector," HRD minister Prakash Javadekar said.

“Educational institutions generally get small-ticket funding for their research and infrastructure expansion. We are operationalizing the agency today to address this issue. We hope it will help improve the quality of our top institutions," Javadekar said.

The Union cabinet cleared the proposal to establish HEFA in September last year.

Canara Bank was selected through an open bidding system after the HRD ministry invited bids from financial institutions in November-December to partner it in the setting up of HEFA.

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Javadekar said the NBFC will raise up to Rs10,000 crore from the market and lend to government-run higher educational institutions. The amount is sizable given the budgetary allocation for top institutions in the 2017-18 budget.

For example, 20 Indian Institutes of Management (IIMs) were allocated Rs1,030 crore in the budget, including Rs190 crore for establishing new IIMs. The University Grants Commission, the apex higher education regulator, has a budget of less than Rs4,700 crore.

HEFA will provide an alternative source of funding to institutions to meet their financial requirements. It will also push institutions to become financially self-sustaining and not depend on the government for all their growth requirements.

So, how will it work? The government will contribute Rs1,000 crore (beginning with Rs300 crore), and Canara bank will put in Rs100 crore as equity. Then HEFA, which will function from a Canara Bank branch, will raise money from the market.

“We are exploring several options including floating tax-free education bonds," said N. Selvarajan, chief financial officer of Canara Bank.

Dharampal Naik, deputy general manager (government business) at Canara Bank, said that the joint venture may also explore bringing in corporate social responsibility funds from companies.

Javadekar said that his ministry too will talk to other financing agencies to contribute but finer details of how this contribution will shape up will be chalked out over the next few months.

The minister said that institutions will now be able to raise funds directly from the financing agency. “We are for giving real autonomy to quality institutions on all aspects. The IIM Bill, which was tabled in the Lok Sabha on Thursday, is an example of the government’s intention," he added.

Individual institutions functioning under central and state governments will be able to apply to the agency for a loan and after “due diligence" will be sanctioned funds. The money borrowed will be paid back by the institutions from their own income. The government will pay the interest accrued on the loans taken by the institutions through budgetary provisions.

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