Finance Minister Nirmala Sitharaman today announced that the Union Cabinet has cleared the setting up the Development Finance Institution (DFI), as announced during the Union Budget 2021, with an initial capital infusion will stand at Rs 20,000 crore. “Through this, we expect to raise a considerable amount through the market,” the Nirmala Sithraman said. She added that the DFI is expected to raise up to Rs 3 lakh crore in the next few years. The government expects to rope in marquee pension funds, sovereign funds to come in through the DFI to fund infra projects in the country. The bill will now be tabled in Parliament during the current Budget Session.
DFI is expected to raise long-term funds for infrastructure development in the country. The Finance Minister, today, said that the initial grant to the DFI will be Rs 5,000 crore and additional increments of grants will be made within the limit of Rs 5,000 crore. “Government is also planning to issue some securities to the DFI by which the cost of funding will come down,” Nirmala Sithraman said. “All this will help DFI leverage initial capital and draw funds from various sources will also have a positive impact on bonds markets.”
The board of the DFI will comprise persons of eminence. The Finance Minister further stated that incentives for the board will be market-driven. The Chief Executive of the board will have a higher age limit and a longer tenure. The board of DFI will decide on the merger of India Infrastructure Finance Company into the DFI. The government of India will have 100% ownership of the DFI, once set up. However, the ownership will come down to 26% over the years.
Earlier, during her Union Budget speech, the Finance Minister had announced the plans to set up the DFI as a provider, enabler and catalyst for infrastructure financing. The ambition of the DFI is to have a lending portfolio of Rs 5 lakh crores in three years time.
Post the Union Budget announcement, HDFC Securities had said that the setting up of a DFI would be a negative for sovereign-owned NBFCs such as PFC and REC. “A better alternative would have been to re-purpose existing sector-specific sovereign-owned NBFCs with a broader infra mandate,” HDFC Securities had said.