Why in news?

• The Reserve Bank of India (RBI) announced that National Bank for Financing Infrastructure and Development (NaBFID) will be regulated and supervised as an All India Financial Institution by it under the Sections 45L and 45N of Reserve Bank of India (RBI) Act, 1934.
• NaBFID has been set up as a Development Financial Institution (DFI) to support the development of long-term infrastructure financing in India.
• It shall be the 5^th AIFI after Export Import (EXIM) Bank, National Bank for Agriculture and Rural Development (NABARD), National Housing Bank (NHB) and Small Industries Development Bank of India (SIDBI).

Background:

• The National Bank for Financing Infrastructure and Development (NaBFID) Act, 2021, received the assent of the President on March 28, 2021 and came into force with effect from April 19, 2021.

Key points

• The Bill seeks to establish NaBFID as the principal development financial institution (DFIs) for infrastructure financing.
• DFIs are set up for providing long-term finance for commercial banks that are beyond the acceptable limits of commercial banks and other ordinary financial institutions.
• Unlike banks, DFIs do not accept deposits from people and source funds from the market, government, as well as multilateral institutions, and are often supported through government guarantees.

About NaBFID

• NaBFID is being set up as a corporate body with authorized share capital of one lakh crore rupees.
• Shares of NaBFID is held by central government, multilateral institutions, sovereign wealth funds, pension funds, insurers, financial institutions, banks, and any other institution prescribed by the central government.
• Initially, the central government will own 100% shares of the institution which may subsequently be reduced up to 26%.

Objectives of NaBFID

• Financial objectives – This will directly or indirectly lend, invest, or attract investments for infrastructure projects located entirely or partly in India.
• Developmental objectives – This includes the development of the market for bonds, loans, and derivatives for infrastructure financing.

Functions

• NaBFID extends loans and advances for infrastructure projects, refinances existing loans, attracts investment from private sector investors and institutional investors for infrastructure projects, organises and facilitates foreign participation in infrastructure projects, facilitates negotiations with various government authorities for dispute resolution in the field of infrastructure financing, and provides consultancy services in infrastructure financing.

Governance:

• NaBFID will be governed by a Board of Directors and members that includes,
• Chairperson appointed by the central government in consultation with RBI.
• Managing Director (MD) along with 3 Deputy Managing Directors.
• A body constituted by the central government will recommend candidates for the post of the Managing Director and Deputy Managing Directors.
• Two directors nominated by the central government with up to three directors elected by shareholders and also few independent directors (as specified).
• The Board will appoint independent directors based on the recommendation of an internal committee.