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The National Bank for Financing Infrastructure and Development Bill, 2021

The National Bank for Financing Infrastructure and Development Bill, 2021 (the Bill) was introduced in Lok Sabha on March 22, 2021. The National Bank for Finance Infrastructure and Development (NBFID) will be the primary development finance institution (DFI) for infrastructure financing, according to the bill.

DFIs are created to provide long-term financing to parts of the economy where the risks are too high for commercial banks and other traditional financial institutions to handle. DFIs, unlike banks, do not accept deposits from individuals. They raise money from the market, the government, and multilateral organizations, and are frequently backed by government guarantees.

Purpose and Objectives of the National Bank for Finance Infrastructure and Development:
NBFID’s main developmental goal is to work with both Central and State Government, regulators, financial institutions, institutional investors, and other key players in India and abroad to make it easier to construct and improve the necessary institutions to support the growth of long-term non-recourse infrastructure finance, including domestic bonds and derivatives markets.

The Institution's financial goal is to lend or invest, directly or indirectly, and to seek investment from the private sector and institutional investors in infrastructure projects in India, or partially in India and partially outside India, to promote India's long-term economic growth.

NBFID would be established as a corporation with INR one lakh crore authorized share capital. NBFID shares may be held by:
The central government, multilateral institutions, sovereign wealth funds, pension funds, insurers, financial institutions, banks, and any other institution prescribed by the central government.

The central government will initially control 100% of the institution's shares, which may later be cut to as little as 26%.

Functions and Powers of the National Bank for Finance Infrastructure and Development:
The NBFID has both financial and developmental goals. The financial goals will be to lend, invest, or attract funds for infrastructure projects that are wholly or partially situated in India.

The infrastructure domain will be defined by the central government, which will specify the industries that will be covered.

Facilitating the growth of the market for bonds, loans, and derivatives for infrastructure finance is one of the development goals. Functions of NBFID include:
Extending loans and advances for infrastructure projects, taking over or refinancing such existing loans, attracting investment from private sector investors and institutional investors for infrastructure projects, organizing and facilitating foreign participation in infrastructure projects, facilitating negotiations with various government authorities for dispute resolution in the field of infrastructure financing, and providing consultancy services in infrastructure financing.

Prohibited Business for the National Bank for Finance Infrastructure and Development:
The NBFID will not provide any loans or advances using its bonds or debentures as collateral. They may not issue loans or advances to any person or group of people in whom any of the Institution's directors is a proprietor, partner, director, employee, or guarantor, or in which one or more of the Institution's directors has a significant stake.

In regards to a borrower, substantial interest refers to the beneficial interest owned by one or more of the Institution's directors or by any relative of such director as defined in Clause (77) of Section 2 of the Companies Act, 2013, whether individually or collectively, in the shares of the borrower, and the aggregate amount paid-up on which either exceeds fifty lakhs rupees or 2% of the borrower's paid-up share capital, whichever is lower, or such other threshold as may be specified.

Source of funds:
NBFID may raise funds by loans or other means in both Indian rupees and international currencies, or by issuing and selling a variety of financial products such as bonds and debentures.

NBFID may borrow money from:
The central government, Reserve Bank of India (RBI), scheduled commercial banks, mutual funds, and multilateral institutions such as the World Bank and Asian Development Bank.

Management of the National Bank for Finance Infrastructure and Development:
The Board has general supervision, direction, and control of the NBFID’s operations and operations, and can exercise all powers and perform all actions and things that the Institution may exercise or perform.

It is governed by a Board of Directors and the members of the Board include:
a Chairperson, to be appointed by the Central Government in consultation with the Reserve Bank;
a Managing Director, to be appointed by the Board, on the recommendations of the Bureau subject to procedure and clearances from agencies determined by the Central Government;
not more than three Deputy Managing Directors, each of whom has to be selected by the Board on the Bureau's proposal and subject to the Central Government's procedure and permissions from such authorities;
two directors, to be nominated by the Central Government, who will be the officials of the Central Government;
several directors not exceeding three, chosen by shareholders in the manner stipulated, such that a shareholder owning 10% or more of the total issued equity share capital, other than the Central Government, can nominate one director;
The Board will nominate three independent directors, or one-third of the total number of directors on the Board, whichever is higher, on the proposal of the Nomination and Remuneration Committee.

Candidates for the positions of Managing Director and Deputy Managing Directors shall be recommended by a central government authority. On the proposal of an internal committee, the Board will nominate independent directors.

Support from the Central Government:
The Central Government provides financial assistance to NBFID in the form of grants or contributions, if needed, in the form of cash or marketable government securities. By the conclusion of the first fiscal year, the Central government would have provided NBFID with funds of Rs 5,000 crore. The government would also give a guarantee for borrowing from multilateral organizations, sovereign wealth funds, and other foreign entities at a reduced cost of up to 0.1 percent.

The government may refund some or all of the costs associated with protecting against currency volatility. Upon request by NBFID, the government may guarantee the bonds, debentures, and loans issued by NBFID.

Hedging costs incurred by the Institution in connection with any foreign currency borrowing to issue loans and advances or repay them, to protect the Institution against rate fluctuations, may be repaid in part or in full by the Central Government.

The Government must establish a concessionary fee rate of not more than 0.1 percent at which the Government may offer a guarantee to the Institution for borrowings from multilateral institutions, sovereign wealth funds, and other foreign institutions as may be authorized.

Prior Sanction for Investigation and Prosecution:
No investigation agency, including the Police, Central Bureau of Investigation (CBI), Serious Fraud Investigation Office, Directorate of Enforcement, and such other agencies, are in the position to conduct any inquiry or investigation into any offence alleged to have been committed under any law, concerning any recommendation made or decision taken by the Chairperson or other directors, employees or officers of the Institution in the discharge of their official functions or duties, without the previous approval of the central government in the case of the chairman or other directors, and the managing director in the case of other workers. In cases involving NBFID staff, courts will also seek prior sanction before taking cognizance of the offence.

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