Govt to hold 100% stake in NBFID at formation, reduce it to 26% later

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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.

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, including 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).

The Bill says that the developmental objective of NBFID will be to coordinate with governments, regulators, financial institutions, institutional investors and other relevant stakeholders to facilitate building and improving institutions to support the development of long-term non-recourse infrastructure financing in India including the domestic bonds and derivatives markets.

“The financial objective of the Institution shall be to lend or invest, directly or indirectly, and seek to attract investment from private sector investors and institutional investors, in infrastructure projects located in India, or partly in India and partly outside India, with a view to foster sustainable economic development in India,” it said.

Full government ownership initially

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 said.

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, thus confirming an earlier newsbreak by Moneycontrol.

“Shares of the Institution may be held by the central government, multilateral institutions, sovereign wealth funds, pension funds, insurers, financial institutions, banks, and any such institution as may be prescribed, provided that the central government shall hold at least 26 percent of the shares of the Institution at all times,” it said.

The 100 percent initial stakeholding will come with an infusion of Rs 20,000 crore, as announced by Sitharaman 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.

Policymakers in the Finance Ministry have said that just one DFI will not do. With that in mind, the Bill has a provision to allow setting up of a privately held DFI.

“Any person who intends to set up a development financial institution, shall make an application to the Reserve Bank for licence. The Reserve Bank may in consultation with the Central Government, grant licence subject to such criteria, terms and conditions as may be specified by the Reserve Bank by regulations,” the Bill says.

Access to Funds

As was expected, the NBFID’s borrowings may come with guarantee by the sovereign. The Bill says that if asked by the bank, the 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 fees of 0.1 percent for borrowings from multilateral institutions, sovereign wealth funds, and such other foreign institutions.

Additionally, the Bill also allows NBFID to borrow money from the RBI repayable on demand or within 90 days from the day of borrowing. The bank will also be able to borrow from RBI against Bills of exchange or promissory notes arising out of bona fide commercial or trade transactions maturing within five years from the date of the borrowing.

Management and protection from prosecution

Sitharaman had said last week that the NBFID will be a professionally run institution. As per the Bill, 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.

“No suit, prosecution or other legal proceedings shall lie against the Institution or its Chairperson or other directors, employees or officers for anything which is done in good faith or intended to be done under this Act, including in respect of assets created or transferred to the Institution,” it said.

The Bill said that no investigation agency shall conduct any enquiry into decision making by officials of the company without the previous approval of the central government or the Managing Director. It added that no such approval shall be necessary for cases involving arrest of a person on the spot on the charge of accepting or attempting to accept any undue advantage for himself or for any other person.