National Bank for Financing Infrastructure and Development (NBFID)

Why in news?

• The central government will hold at least 26 percent stake in the new development finance institution, as per the Bill introduced in Lok Sabha by Finance Minister Nirmala Sitharaman on March 22.
• Finance minister had announced in budget 2021 that India will set up a new development finance institution called the National Bank for Financing Infrastructure and Development,

About NBFID:

• The National Bank for Financing Infrastructure and Development (NBFID) Bill says the aim of the institution will be to support the development of long-term non-recourse infrastructure financing in India.
• It will aim at development of the bonds and derivatives markets necessary for infrastructure financing and to carry on the business of financing infrastructure.
• The NBFID will be headquartered in Mumbai with offices across India and will be regulated by the Reserve Bank of India (RBI).

Share holding pattern:

• The authorised share capital of the bank will be Rs 1 lakh crore rupees divided into ten thousand crore of fully paid-up shares of ten rupees each.
• The bill further stated that the shares will initially all be allotted to the centre (which means it will hold 100 percent), that will later be reduced to 26 percent.
• The 100 percent initial stakeholding will come with an infusion of Rs 20,000 crore, as announced by Finance minister in the Budget.
• There will also be an additional infusion of Rs 5,000 crore a year after the setting up of NBFID, in the form of cash or securities.

Access to Funds

• NBFID’s borrowings may come with guarantee by the sovereign.
• Centre will guarantee the bonds, debentures and loans issued by the bank as to the repayment of principal and the payment.
• This guarantee will be extended at a concessional fee of 0.1 percent for borrowings from multilateral institutions, sovereign wealth funds, and such other foreign institutions.
• The Bill also allows NBFID to borrow money from the RBI repayable on demand or within 90 days from the day of borrowing.

Management and protection from prosecution

• NBFID will be a professionally run institution with the managing director will be appointed by the board at the recommendation of a bureau set up by the government.
• The bureau will also recommend not more than three deputy managing directors. The Centre will appoint two nominees on the board while other shareholders holding more than 10 percent can nominate one director each.
• The board will also have independent directors not exceeding three or one-third of the total number of directors on the board, whichever is higher.
• The Bill also provides legal protection related to the workings of the institution.

Prelims Question

Consider the following statements regarding the proposed National Bank for Financing Infrastructure and Development (NBFID):
1.It will be set up with an authorised share capital of Rs 1 lakh crore rupees.
2.Central government will guarantee the loans issued by the bank.
Which among the above statements is/are correct?
(a)1 only
(b)2 only
(c)Both 1 and 2 
(d)Neither 1 nor 2

Answer to the Prelims Question