Mumbai: The Union Cabinet, headed by Prime Minister Narendra Modi, approved the bill to set up a development finance institution (DFI) to finance long-term infrastructure projects.



Confirming the development, Finance Minister Nirmala Sitharaman in a briefing after the cabinet meeting on Tuesday, said that the DFI Bill had been cleared by the cabinet and now will get tabled in parliament.


The DFI, likely to be named the National Bank for Financing Infrastructure and Development (NBFID), will generate funds for investment in the country's infrastructure sector.


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Commenting on the bill, Vinayak K Deshpande, Managing Director – Tata Projects, said, "We welcome the Union Cabinet's approval to the setting-up of a Development Finance Institution to fund long-term infrastructure projects in India. This was the need of the hour since infrastructure projects have long gestation periods, and therefore long-tenure financing was a critical issue facing the industry and construction companies. This professionally managed institution will also attract pension and sovereign funds since the government may provide tax exemptions. Institutional financing of infrastructure projects will also enable the monetization of completed projects."


According to Mr. Deshpande, there will be less uncertainty regarding payment timelines, thereby reducing project delays. It will also ensure that construction companies are paid on time and ramp up further and augment internal and partner resources towards faster completion of ongoing and future projects.


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The Finance Minister said that the government expects the DFI to raise up to 3 lakh crore in the next few years. For 2021-22, the government will infuse Rs 20,000 crore into the DFI, including Rs 5,000 crore to be given immediately.


"This is a very important initiative for bolstering the financing needs of the infrastructure sector. Relieving the banks of the asset-liability mismatch inherent in bank lending to infra, this institution should be enabled to provide long-term capital for the infra sector. On the liability side, it should be permitted to access all forms of long-term capital, domestically as well as internationally. The bank needs to be manned by finance and sector experts for effective monitoring of the projects," said Soumitra Majumdar, Partner, J Sagar Associates.