‘Centre to set up development finance entity in 3-4 months’

Infra needs patient capital, banks not ideal for long-term projects: DFS Secretary.

Workers unload iron rods from a truck at the construction site of an educational institute on the outskirts of western Indian city of Ahmedabad August 30, 2013. Scrambling for remedies as investors' faith in India sagged, the government said last week it fast-tracked approval for a slew of infrastructure projects worth $28 billion: but the stroke of a pen in New Delhi will not be enough. The government hopes that speeding up the launch of hundreds of new power plants, highways and oil exploration blocks will breathe new life into an economy that has fallen off its perch as an emerging market high-flier. However, there is no evidence to suggest that these projects will somehow sidestep the obstacles that have hobbled construction for years - from red tape and land acquisition battles to banks' unwillingness to lend to a risk-prone sector. Picture taken August 30, 2013. To match story INDIA-INFRASTRUCTURE/ REUTERS/Amit Dave (INDIA - Tags: BUSINESS EMPLOYMENT CONSTRUCTION POLITICS)

The government plans to set up a Development Finance Institution (DFI) in the next three to four months with a view to mobilise the ₹111 lakh crore required for funding of the ambitious national infrastructure pipeline, according to Financial Services Secretary Debasish Panda.

“We need a development financial institution as infra financing needs patient capital, and banks are currently not suited for lending for long-term projects which do not generate any cash for years,” he told PTI .

Even deepening the bond market with regard to infrastructure financing was a matter receiving the Centre’s attention and there was a need to do something more in order to have a robust bond market for infrastructure financing, he said.

“To provide funding, to enhance credit rating of projects, a DFI is needed, and we are actively working on it, and soon such an institution will be in place. We are in the process of finalising details such as shareholding of the government and whether such a body will be formed through a statute.

“The DFI will be a catalyst, and would fund projects where others are not willing to enter because of the risks involved,” he said.

The DFI should become a reality may be by the end of the current financial year or early next year, he added.

In her last Budget speech, Finance Minister Nirmala Sitharaman had proposed to set up DFIs for promoting infrastructure funding. About 7,000 projects have been identified under the National Infrastructure Pipeline with projected investment of ₹111 lakh crore during 2020-25.

The DFI, Mr. Panda said, would have a key developmental role apart from the financing role. Prior to liberalisation, India had DFIs engaged in development of industry. ICICI and IDBI, in their previous avatars, were DFIs. The country’s oldest financial institution IFCI Ltd. too had acted as a DFI.