Author: S. Aditya, 2nd Semester LL.M. (Corporate Law) at Hidayatullah National Law University, Raipur.
The current government of India is looking forward to increasing the investments and business opportunities in India, therefore there has been an increase in the infrastructural projects outlay by the government in the form of development of the roadways, railways, and waterways. This enactment also exemplifies the aim of the government to provide long term credit with a stable rate of interest in order to boost the infrastructural growth in both private and public sector.
Development Finance Institution (DFI) is not a new concept to the Indian economy where Industrial Finance Corporation of India (IFCI) was established in 1947, later in 1955 the now commercialised Industrial Credit and Investment Corporation of India (ICICI) was established. The shortcoming of these development banks was reported by the Narasimhan Committee 1, where it was observed that the issue of non performing assets (NPA) was rising at an alarming rate due to the politically motivated loans extended to various corporations. The instant legislation provides for formation of professional boards constituted by the eminent persons in order to avoid the earlier rampant political lobbying In the sector of infrastructure financing.
Objectives of the Act
The Objective behind the enactment of this legislation is twofold where the government aims at boosting the financial infrastructure in order to provide loans to the infrastructural projects which would require long term loan providers and to foster the developmental goals of India by facilitating the quick mobilisation of resources for the business participants of the nation. The loans that would be provided to the infrastructural projects is being supported by the government currently by infusing funds into the capital of National Bank for Financing Infrastructure and Development, but it is being aimed that the infusion of funds for such projects could be raised from public and private players at large in future by providing infrastructural securities and bonds.
Features of the Act
- The government aims to create a centralised authority, that is, the National Bank for Financing Infrastructure and Development (NBFID) to regulate the sector of infrastructure related financing.
- The National Bank for Financing Infrastructure and Development (NBFID) under this enactment would be a corporate body which has been established as an authority to extend loans and furthermore can even refinance the earlier existing loans.
- The National Bank for Financing Infrastructure and Development (NBFID) would infuse government funds in the infrastructural sector and also play a crucial role in attracting investments from institutional investors and private investors for supporting the infrastructural projects. NBFID would also be responsible towards bringing foreign investments into the large scale infrastructure projects.
- The National Bank for Financing Infrastructure and Development (NBFID) shall also be responsible to carry out negotiations on behalf of the various authorities of the government in order to resolve the dispute pertaining to the infrastructural sector and it shall also play a consulting role in infrastructure financing.
Analysis of Enactment
The National Bank for Financing Infrastructure and Development (NBFID), would be a primary Development Finance Institution (DFI), established by this enactment which shall provide long term support to the infrastructural projects by bringing in a structure for infrastructure financing. The need for the long term infrastructure financing was felt due to the objective of the government to increase the investment and profitability of the businesses in India, which in turn requires better availability of infrastructure. This Act has introduced an institution which shall be a body corporate, called National Bank for Financing Infrastructure and Development (NBFID), having perpetual succession and common seal with head office located at Mumbai. The objective of the institution stated above has been clearly expressed in the enactment to be developmental and financial, where there is a clear cut objective of developing the non-recourse infrastructure financing in India by collaborating with various stakeholders which includes both governmental and non-governmental players. The enactment in furtherance to the financial objective seeks to foster the involvement of Institutional and private sector investors in order to create a self sustaining infrastructure financing cycle in India.
The NBFID is a body corporate having an authorised share capital of a hundred thousand Crore Rupees. The government has currently invested 20,000 crore rupees into the institution and has 100% ownership, but it has been declared that once the investments into the share capital by the other stakeholders increases the government will reduce its ownership to 26%.
The enactment also provides for the constitution of the board of directors of the National Bank for Financing Infrastructure and Development (NBFID) wherein it has been provided their appointment shall be done by the central government in consultation with the Reserve Bank of India (RBI). The independent directors shall constitute 1/3rd of the total number of directors on the board. The central government is bestowed with the authority to remove the chairperson and directors of the body corporate if they are adjudged insolvent, suffer from incapability to act as a director, if they are convicted for an offence involving moral turpitude, if they acquire economical interest which will run contrary to the role of independent director and such other reasons.
The National Bank for Financing Infrastructure and Development (NBFID) is responsible to form subsidiaries for forwarding the objectives of institutional infrastructure financing by providing long term loans and by refinancing earlier disbursed loans. To hold and sell securities and to increase the liquid market for bonds and other derivatives for supporting infrastructure financing. The government provides financial contribution to the capital of the NBFID, the government may also provide concessional rates on the government guarantee and the government may also hedge costs to insulate the institution from fluctuation in the rate of exchange.
This enactment provides for detailed steps to be undertaken by the National Bank for Financing Infrastructure and Development (NBFID) in relation to the maintenance of account books and the subsequent periodical audit of the above said accounts. It was contended by one of the members of the parliament that the provision under Section 35 of the instant enactment acts as an obstruction against the action of Central Bureau of Investigation (CBI), It was also contented that granting Central government an authority In exclusion to the Comptroller and Auditor General (CAG) and Central Vigilance Commission (CVC) would cause potential threat to the public fund managed and lent by NBFID as an institution, rebutting the contention of threat to the public fund finance minister Nirmala Sitaraman had stated that the enactment allows the presentation of the audited accounts of NBFID to be tabled before the parliament thus assuring a parliamentary oversight over the actions of the institution.
The sources of funds for the National Bank for Financing Infrastructure and Development (NBFID) has also been expressly mentioned in the enactment to be primarily the central government and the Reserve Bank of India, followed by commercial banks, mutual funds, and loans from multilateral institutions such as World Bank and Asian Development Bank.
- Formation of a central development finance institution (DFI) known as the National Bank for Financing Infrastructure and Development (NBFID) for providing long term infrastructure financing.
- NBFID would be set up as a body corporate where the share capital would be raised from the funds of central government, multilateral institutions, pension funds, financial institutions and other institutions as prescribed by the central government. The government ownership of the NBFID currently at 100% would be reduced to 26%.
- The management of the NBFID shall constitute chairperson, managing director, other directors as recommended by the central government. The investigation and prosecution against these employees could only be initiated after the approval of the central government.
- The formation of the National Bank for Financing Infrastructure and Development (NBFID) is a positive step towards the direction of infrastructural development and economic development of the nation.
- The concerns raised by the experts against the enactment of National Bank for Financing Infrastructure and Development (NBFID) is the authority held by the central government without check while handling the public funds.
- There is furthermore a bar on investigation against the National Bank for Financing Infrastructure and Development (NBFID) employees without the prior sanction of the central government and thus leading to concentration of authority.
- This institution shall be funding the infrastructural projects and thus would be responsible for a large outlay of public funds and therefore must be scrutinised by various departments of the state.