The Indian government is considering the establishment of a new non-banking financial company (NBFC) to facilitate credit financing for infrastructure projects. This initiative aims to enhance the credit risk profile of such projects, particularly those initiated at the state and district levels.
Purpose of the NBFC
The proposed NBFC would provide guarantees for lower-rated infrastructure bonds. This, in turn, would improve project ratings and credit risk profiles, enabling companies to secure funding on more favorable terms. The focus is on addressing funding challenges faced by state government projects, especially those related to last-mile schemes.
Benefits for Infrastructure Projects
Sanjay Agarwal, Senior Director at Care Ratings Ltd, highlights the advantages of an NBFC offering guarantees. He emphasizes that while projects like roads and renewables are adequately financed, there is a need for funding in state government projects, particularly those at the district level. The institution would attract more long-term funds to support the infrastructure sector.
Timeline and Implementation
The government plans to unveil the details of this initiative in the upcoming budget, with a comprehensive plan expected to be finalized in the next fiscal year (FY25).
Background and Previous Proposals
Finance Minister Nirmala Sitharaman initially proposed the idea of setting up an NBFC for infrastructure financing in the 2019-20 budget. However, the implementation was delayed due to disagreements between different government departments. Previous discussions included the establishment of entities like the National Infrastructure Credit Enhancement Ltd or Credit Guarantee Enhancement Corporation, with an initial capital of Rs. 20,000 crore and equity participation by other state-run financial institutions.
Need for Credit Enhancement
The COVID-19 pandemic has underscored the importance of credit enhancement in supporting infrastructure companies facing financial stress. The proposed structure aims to provide easy access to liquidity for new investments, addressing the challenges currently faced by the sector.
Conclusion
The establishment of a dedicated NBFC for infrastructure financing represents a significant step in supporting projects at various government levels. By offering credit guarantees, this initiative seeks to boost funding for critical infrastructure initiatives, contributing to the overall growth and development of the sector.
