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Business News/ News / India/  New DFI will steady capital flow to infra sector: Financial services secy
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New DFI will steady capital flow to infra sector: Financial services secy

A corpus of Rs5,000 crore that has been created will help ensure that cost of funds when they are lent to infra projects is cheap and commensurate with the length of the projects

The Union government is in the process of indentifying banks that will be put up for privatization in the coming days, and that nothing has been finalized as yet, Panda said.Premium
The Union government is in the process of indentifying banks that will be put up for privatization in the coming days, and that nothing has been finalized as yet, Panda said.

The recently passed National Bank for Financing Infrastructure and Development (NaBFID) Act will create a development finance institution (DFI) that will ensure steady flow of funds to infrastructure projects in India at a cheaper rate and will provide much relief to the capital-starved sector in the years to come, said financial services secretary Debashish Panda in an interview to a television channel.

He said the Union government is in the process of indentifying banks that will be put up for privatization in the coming days, and that nothing has been finalized as yet.

Also Read | The great financial crunch: How the pandemic sank Indian states

India’s infrastructure sector has been suffering from paucity of capital in the last few years as banks stopped lending due to a surge in bad loans owing to asset-liability mismatch in the balance sheet of banks.

“The whole idea behind infrastructure financing has been that the cost of financing should be cheaper. Only then it works. Banks have not been able to succeed in this owing to asset-liability mismatches. They won’t be able to lend long-term. Here you need patient capital to be coming in. Now, how do we make the cost of funds cheaper? It is by way of raising money through tax-free bonds, or compensating the new DFI to the amount they would have saved through tax-free bonds," said the secretary in an interview with CNBC TV-18.

As part of the National Infrastructure Pipeline, the Union government plans to invest Rs111 trillion in 7,671 infrastructure projects in the next four years to 2024.

The Narendra Modi-led government, in the Union budget, decided to increase spending on infrastructure projects in FY22. Capital expenditure of central government is projected to touch Rs5.54 trillion next fiscal, while it is likely to close at Rs4.4 trillion in the current one, according to the budget announcements.

“Money comes out from the state coffers and gets compensated later so that at the end of the day the cost of funds when they are lent to infra projects is cheap and commensurate with the length of the projects. Therefore, it will be viable. We have created a corpus of Rs5,000 crore which will take care of that. Rather than raising tax-free bonds it will be regular bonds, but this corpus will help the DFI to lend this money at a cheaper rate," he added.

In the latest budget, the Union government announced decision to privatize some public sector banks and one government-owned insurance company. The ministry of finance, though, has not yet identified any bank that will be put up for sale in the coming fiscal.

“At this stage nothing has been decided as to which ones will be privatized. For target identification, there is a process that has been established. Niti will do the exercise in the first place and then it goes to committee of secretaries and thereafter to the alternative mechanism and then to the cabinet. Work is on and at this point it has not been identified as to which banks will be up for privatization," he added.

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Published: 26 Mar 2021, 02:19 PM IST
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