NaBFID may take Rs 5,000 crore credit exposure through infra bonds

The PCE facility is expected to boost the credit rating of A-rated infrastructure bonds to AA, making them eligible for investments from pension funds and insurance companies.

National Bank for Financing Infrastructure and Development (NaBFID) - a development finance institution - is likely to take credit exposure worth Rs 4,000-5,000 crore during FY26 under the Partial Credit Enhancement (PCE) facility for infrastructure corporate bonds, a government official has told Moneycontrol.

The move aligns with Centre’s goal of expanding the corporate bond market for infrastructure following Budget 2025 announcement permitting NaBFID to establish the facility. The Budget proposal is expected to help bond issuers reduce their dependence on traditional bank borrowing.

A Partial Credit Enhancement (PCE) facility was introduced by RBI to allow companies to raise funds by improving the credit rating of their bonds. By improving the creditworthiness of such bonds, the facility could open new funding avenues for infrastructure projects, and lower borrowing costs for issuers.

Around Rs 1 lakh crore worth of infrastructure loans are expected to shift to the bond market in FY26, with about Rs 20,000 crore requiring credit enhancement. "NaBFID may cover Rs 4,000-5,000 crore of this and collaborate with institutions like the World Bank to share the credit exposure," the official told Moneycontrol.

Regulatory Easing

NaBFID has sought a relaxation in capital requirement norms from the Reserve Bank of India (RBI) to enable an efficient rollout of the PCE facility. “NaBFID has sought certain relaxations from the RBI. These norms were framed in 2015 when infrastructure was considered riskier, but defaults have reduced, and the sector is more stable now,” the official said.

NaBFID’s Managing Director Rajkiran Rai had earlier talked about the need for regulatory easing.  "The scheme will launch in April. We are working on reducing our capital costs. With a few tweaks in the capital norms, we can scale up this facility significantly," Rajkiran Rai had said.

Funding from Pension Funds

The PCE facility is expected to boost the credit rating of A-rated infrastructure bonds to AA, making them eligible for investments from pension funds and insurance companies.

This rating enhancement is crucial for attracting long-term investors who traditionally focus on high-grade securities. The entry of large institutional investors like pension funds will provide much-needed liquidity to the infrastructure bond market.

In Talks with Multilateral Institutions

To reduce its own exposure and capital requirement, NaBFID is in advanced discussions with multilateral agencies such as the World Bank and other global financial institutions, to share the credit risk. This collaboration is expected to significantly lower the cost of maintaining capital and expand the scope of the PCE facility, as per a government official.

NaBFID’s Rajkiran Rai had earlier confirmed that the finance institution is in talks with multilateral agencies to share the credit exposure. “Partnering with global institutions will help reduce the overall capital burden and allow us to offer credit enhancement at a competitive cost," Rajkiran Rai said.

The partnerships will enable NaBFID to leverage international expertise and funding while reducing risk concentration on its own balance sheet. This approach, government officials believe, will enhance the scalability of the PCE facility and attract a wider range of investors to India’s infrastructure sector.

Finance Minister Nirmala Sitharaman on February 1 while presenting Union Budget 2025, announced that NaBFID will set up a ‘Partial Credit Enhancement Facility’ for corporate bonds for infrastructure.