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Informist, Thursday, Sep 12, 2024

 

--RBI Rao: Will consider credit enhancement for NaBFID if approached
--RBI Rao: NaBFID must ensure inclusive, sustainable infra development
--RBI Rao: NaBFID must set up unit to monitor ongoing infra projects
--RBI Rao: NaBFID must focus on liquidation, resolution of bad assets
--RBI Rao: Pension funds give NaBFID opportunities for long-term funding
--RBI Rao: Insurance gives NaBFID opportunities for long-term funding
--CONTEXT: RBI Deputy Governor Rao at NaBFID infra event
--RBI Rao: Involvement of pvt sector crucial to expand infra funding

 

MUMBAI – The National Bank for Financing Infrastructure and Development, or NaBFID, needs to reduce its reliance on funding from the government and should be able to manage on its own, Reserve Bank of India Deputy Governor M. Rajeshwar Rao said today.  

 

"It is also necessary that over the medium term, plans for self-sustainable operation, as a business model, that is not reliant on continuous government support or regulatory dispensation need to be put in place," Rao said at the NaBFID Infrastructure Conclave 2024 in Mumbai.  

 

Rao said that the development finance institution should also strive for a strong credit rating, which will help in tapping global and domestic sources of funding in the future. 

 

"The growth in scale of large institutional investors, such as the life insurance companies and pension funds, presents an opportunity for NaBFID to secure long-term reliable funding for their financing needs, offering a natural fit," he said.

 

The role of the governance and assurance functions in financial institutions is necessary to attract such investment, the RBI deputy governor said. For NaBFID, which is in its formative phase, it would be important to equip itself with the right resources and skills through human resource development, institutional strengthening and adopt best practices. The infrastructure development institution, set up in 2021, must ensure robust risk management practices right from the outset, Rao said.

 

NaBFID must quickly transform itself as a leader in infrastructure finance by honing its skills in project appraisal, Rao said. In addition, the body must set up a unit to monitor the progress of ongoing infrastructure projects it is financing through comprehensive and frequent surveys and assessments. This was a key learning from past episodes of the collapse of credit cycles, he said.

 

"Furthermore, necessary mechanisms must be put in place for dealing with liquidation and resolution of bad assets, and sufficient expertise must be built internally towards this end," the RBI deputy governor said.

 

Low carbon and climate resilient infrastructure is the way ahead, Rao said. Institutions like NaBFID have a role to play in pushing climate finance and the body should aim to ensure inclusive and sustainable infrastructure development.

 

The central bank has also taken prudential measures to incentivise banks towards infrastructure lending, Rao said. It would also consider credit enhancement for NaBFID if approached by the institution, he said. In addition to the government and regulator's measures, the involvement of the private sector is crucial to expanding infrastructure funding in the country. 

 

As a new-age development financial institution, NaBFID can go beyond its financial objectives. It can help with bond market development and provide technical assistance and consultancy services for infrastructure projects. In addition, it can become a market maker to provide liquidity to investors. It can also offer innovative solutions to attract long-term investment from insurers and pension funds, such as a first-loss default guarantee or partial credit enhancement through rating upgrades, RBI Deputy Governor Rao said. 

 

"It could play a critical role in loan syndication in large ticket loans..." Rao said. "As NaBFID develops its internal rating models for credit appraisal, it may also be able to offer products such as credit default swaps, which would go a long way in assuring confidence in the bond market space."  End

 

Reported by Kshipra Petkar and Sourabh Kumar

Written by Pratiksha and Aaryan Khanna

Edited by Akul Nishant Akhoury

 

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