NaBFID’s different with dual role of financing and development: Rajkiran Rai

Edited Excerpts:

India has seen infrastructure finance companies before. Why didn’t they take off?
Previous institutions like ICICI, IDBI, and to some extent IFCI, had a natural advantage of resource raising. IDBI and ICICI had tax-free bonds with SLR status, so much was available to them at a reasonable price. But they were not very specific to infra; they were doing more of industrial finance. The infra scope was very limited at that time and it was more on the government side, not on the private side, so financing infra was not their main cup of tea. Post-liberalisation, those dispensations were removed, and these institutions had no choice but to become commercial banks.

We saw a phase after that when new infra projects came up and banks financed those despite not having long-tenure liabilities to match these assets. As a result, we saw NPA issues in the banking system because of delays in infrastructure projects.

How is NaBFID different?

After this previous experience there was a thought to have a specialist institution for infra financing, because most countries have their own DFIs (development finance institutions). We have DFIs like NABARD for agriculture, SIDBI for small industries, EXIM Bank for export credit-related issues and NHB for housing, but there was a necessity to have an institution not only for financing but to play a developmental role. When this Act was passed, all the problems were studied and most mitigations built into this Act.

How we are different is we have a dual role of financing and development. Infra cannot be funded by your traditional plain vanilla product. Because it is a 30-year loan. Long tenure is an inherent quality of any infrastructure project. Commercial banks are not really cut out to do these loans. But NaBFID naturally fits that criteria. We want to create that space where we can do long tenure, since we raise our money, like buying bonds and multilateral borrowings.How will you raise resources?
Today, unlike previously, there are resources available to be deployed for the long term, particularly from the insurance sector, which with more than ₹60-lakh crore AUM, is growing faster than bank deposits. Similarly, with pensions, as NPS is now close to ₹10 lakh crore. I am hoping that insurance and pension funds will be my major investors. A lot of India’s roads and transmission assets are being lapped up by marque investors from abroad. They need such long-term assets. I expect a similar thing in India as resources are now available, unlike earlier. Secondly, since we are 100% owned by the government, we should be able to raise money at a very reasonable cost. The bond market is now better equipped than before. But we have to keep our operating costs very low and that will help us be profitable. The government has also given us a grant of ₹5,000 crore, specifically because we cannot issue tax-free bonds. It is like a cushion to help reduce my cost of borrowing.

How will you use this grant? Are you paying interest on this?
No, it’s a grant for which we are not paying anything. In the initial years, we expect that earning from this ₹5,000 crore will go into subsidising the lending. Because even a 10 basis points or 20 basis points reduction makes a lot of difference. We are AAA rated already. Grant money we are not using for lending as of now, we will use it later. We already have ₹20,000 crore of capital and have dispersed ₹12,000 crore, expecting to disburse ₹20,000 crore by June. We expect our total sanctions to hit ₹1 lakh crore this year, out of which 50% to 60% could be disbursed. We will also do our first bond issuance in June, which will be ₹5,000 crore to ₹10,000 crore with a tenure of 10 years. As the price discovery and market develops, we will go for longer issues. This year we are planning to raise about ₹30,000 crore through bonds.

Besides lending, what else will NABFID do?
India today has an about 1.45-lakh crore national infrastructure pipeline. Technology has enabled everyone to see and pick up projects. But there is a need for transaction advisory services, with expertise in picking up the project, doing the technical and economic viability, and helping them raise finances. Structuring of loans should be the specialisation of NaBFID so that the projects become viable. Ultimately, we will have to handhold infra companies to issue the bonds and raise money. They may need credit enhancement because they may not be rated that high. So it is not only the financing part, we will be actually looking at, developing the whole market around financing, advisory services, deepening the bond markets and all that.

You have also mentioned municipal bonds somewhere. Any progress on that front?
We are working jointly with another multilateral agency to look at these municipalities. Urban infra is very important for our country. Whether it is a sewage treatment, drinking water, health care, education, electrical mobility, all qualify for green, and they need money. They will need to improve their accounting and collections. We want to help them to raise bonds and also enhance their credit ratings through credit enhancement guarantees. The question is how to get money into greenfield projects. This is one product which we need. Some regulatory changes may also be needed, which we are working on.