Maarg Manthan · Topic 11.9

National Bank for Financing Infrastructure and Development (NaBFID)

Current Affairs & Government Schemes › Infrastructure and Connectivity Schemes · Topic 11.9

The National Bank for Financing Infrastructure and Development, or NaBFID, is a development finance institution set up under the National Bank for Financing Infrastructure and Development Act, 2021, passed by Parliament in March 2021. It is owned by the Government of India and regulated by the Reserve Bank of India as an All India Financial Institution. The Union Budget of 2021 announced it with a capital of Rs 20,000 crore and a target to build a lending portfolio of Rs 5 lakh crore in three years. Its purpose is to give long term, low cost finance for infrastructure and to deepen the corporate bond market.

6 min read · UPSC Prelims · Current Affairs & Government Schemes · Infrastructure and Connectivity Schemes

At a Glance

Established by NaBFID Act, 2021
Regulator Reserve Bank of India
Type All India Financial Institution
Initial capital Rs 20,000 crore from the Government
Lending goal Rs 5 lakh crore in three years, as announced
Exam link UPSC Prelims, Current Affairs and Government Schemes: Infrastructure and Connectivity Schemes

Where Does It Fit?

This topic closes the macro on infrastructure and connectivity with the financing institution. Every project in the earlier topics needs long term money, and NaBFID is designed to provide it. Previous topic: NITI Aayog NMP 1.0 target Rs 6 lakh crore, FY 2022 to FY…">National Monetisation Pipeline. Next topic: National Solar Mission (Jawaharlal Nehru National Solar Mission).

What Is NaBFID and How Was It Created?

Feature	Details
Announcement	Union Budget speech of 2021 to 2022, with a plan for a development finance institution for infrastructure
Legal basis	National Bank for Financing Infrastructure and Development Act, 2021, passed in March 2021
Status	A financial institution owned by the Central Government, notified as an All India Financial Institution under the Reserve Bank of India
Initial capital	Rs 20,000 crore, with the Government initially holding all the equity and later allowed to reduce its stake to not less than 26 percent
Target	A lending portfolio of about Rs 5 lakh crore within three years of starting, as stated in the Budget
Registration	Operations began in 2021 and 2022 after the notification and the choice of the board

What Does NaBFID Do?

Direct lending: it gives loans and subscribes to bonds of infrastructure projects, including greenfield and brownfield projects
Infrastructure financing: the focus is on long gestation projects such as roads, ports, power, urban and social infrastructure
Bond market role: it aims to support the corporate bond market by issuing bonds, taking part in credit enhancement and guaranteeing debt
Refinancing: it can take over loans from banks, so that banks free up capital for fresh lending
Project preparation support: it can work on advisory and project development, which helps address the weak project preparation seen in many projects
Private funds: it can attract pension funds, insurers and foreign investors by co-lending and by offering equity and risk sharing
Foreign borrowing: the Act allows it to raise funds in India and abroad, with the Government giving a guarantee on some foreign borrowings
Governance: a board with a non-executive chairperson and a managing director and chief executive officer runs it, with representation of the Government and of the Reserve Bank

What Else Should You Remember?

Why a development finance institution: infrastructure projects need loans for 15 to 25 years, but banks fund themselves with short term deposits, which causes an asset liability mismatch
Earlier history: India had development finance institutions such as IDBI, ICICI and IFCI, but most were converted into banks or lost focus after 1990s reforms
Other bodies: IIFCL, the India Infrastructure Finance Company Limited, gives long term loans but does not have the broad mandate of NaBFID
Link with NIP: the Rs 111 lakh crore pipeline needs financing sources, as in National Infrastructure Pipeline (NIP)
Link with monetisation: NaBFID may also fund operators of leased assets, as in National Monetisation Pipeline
Tax benefits: the Act gave NaBFID tax exemptions on income for a period of years, and specific stamp duty exemptions for its borrowings
Subsidiaries: it can set up subsidiaries for functions such as asset management and project advisory, and the board can create these units
Eligible sectors: the list includes energy, transport, water, communication and social infrastructure like health and education
First leadership: K V Kamath, a well known banker, was the first chairperson, and the leadership has changed over time
Rating and funding: it provides long term finance and raises its own funds through bonds, term loans and credit lines from multilateral lenders, and it carries a high credit rating, as reported
Concerns: critics fear that a state owned institution could repeat the bad loan problems of old development banks if lending is not disciplined
Way forward: strong risk management, independent boards, and a focus on projects with clear revenue are key to the success of NaBFID

Why Does It Matter for the Exam?

Basics: the Act, the year and the regulator
Type of institution: All India Financial Institution and the meaning of a development finance institution
Capital: Rs 20,000 crore and the Rs 5 lakh crore target
Concept: asset liability mismatch and why banks cannot fund long projects
Common errors: naming SEBI or NABARD as the regulator, or confusing NaBFID with IIFCL

As an analytical point, India needs institutions that give long term money for infrastructure, and a development finance institution is a direct answer. The earlier record warns that such bodies can accumulate bad loans, so governance and risk control matter as much as capital.

Why Is This Topic Important?

Law Act of 2021
Regulator RBI and AIFI status
Role Long term infrastructure loans

What Came Next?

The next macro covers energy and renewable energy schemes. Next topic: National Solar Mission (Jawaharlal Nehru National Solar Mission).

Key People and Terms

NaBFID National Bank for Financing Infrastructure and Development
DFI Development finance institution
AIFI All India Financial Institution
Credit enhancement Support that raises a bond rating
Asset liability mismatch Long loans funded by short deposits
Gestation Time before a project earns revenue

Exam Corner

Points to Remember

Act: 2021, passed in March.
Regulator: RBI as an All India Financial Institution.
Capital: Rs 20,000 crore.
Target: Rs 5 lakh crore lending portfolio.
First chair: K V Kamath.

Do Not Confuse With

NaBFID and IIFCL A new development bank versus an older infrastructure lender
NaBFID and commercial banks Long term project lender versus deposit funded bank
NaBFID and NABARD Infrastructure development versus agriculture and rural finance

Memory Hook

Twenty thousand crore of capital, five lakh crore of lending, long money for long roads.

Mains Angle

Questions ask whether a new development bank can solve infrastructure funding. These points give a balanced frame.

Benefits Long term funds, bond market, bank relief
Risks Bad loans, governance, political pressure
Way forward Risk control, independence, private funds

A Question You May Face

An original practice question, not a past paper question.

“Discuss the need for a development finance institution like NaBFID in India and the risks that must be managed.”

How to Answer

Need Long term infrastructure loans.
Role Lend, guarantee, refinance.
Risk Bad loans and weak governance.
Way Strong risk control.

GS Relevance

Prelims: Act, year, regulator, capital, type of institution. GS Paper 3: infrastructure financing, banking, bond markets, resource mobilisation.

Frequently Asked Questions

What is NaBFID?

NaBFID is the National Bank for Financing Infrastructure and Development, a development finance institution created under an Act of Parliament in 2021. It is owned by the Central Government, regulated by the Reserve Bank of India as an All India Financial Institution, and gives long term finance for infrastructure projects.

Which Act created NaBFID?

NaBFID was created by the National Bank for Financing Infrastructure and Development Act, 2021, which Parliament passed in March 2021 after the announcement in the Union Budget speech. The Act provides for its capital, powers, board, tax treatment and the regulatory role of the Reserve Bank of India.

What is the capital of NaBFID?

The Union Budget of 2021 announced Rs 20,000 crore of capital for NaBFID from the Government, with a target of building a lending portfolio of about Rs 5 lakh crore in three years. The Government can reduce its stake over time, but not below 26 percent.

Why does India need a development finance institution?

Infrastructure projects need loans for 15 to 25 years, but banks rely on short term deposits, which creates an asset liability mismatch. A development finance institution raises long term funds through bonds and loans and lends for long projects, which also deepens the corporate bond market.

Who regulates NaBFID?

The Reserve Bank of India regulates NaBFID as an All India Financial Institution, along with institutions such as NABARD, SIDBI, EXIM Bank and the National Housing Bank. It is therefore not under SEBI, and it is separate from commercial banks that take public deposits.

PYQ Practice — Statement Analysis

1 NaBFID was established by an Act of Parliament in 2021.

True

It is the NaBFID Act, 2021.

2 NaBFID is regulated by SEBI.

False

The Reserve Bank of India regulates it as an AIFI.

3 The initial capital announced for NaBFID was Rs 20,000 crore.