FinMin proposes DFI tag for IIFCL to support long term financial needs

The finance ministry has proposed giving the ‘development finance institution’ (DFI) tag to India Infrastructure Finance Company Limited (IIFCL) in a bid to support long-term financial needs of infrastructure projects.

“The department of financial services (DFS) has prepared a Cabinet note to give DFI status to IIFCL. The proposal being discussed will require the approval of Parliament as a Bill will be introduced to effect the change,” a finance ministry official said, requesting anonymity.

DFS Secretary Debasish Panda didn’t respond to queries from Business Standard.

IIFCL is a government-owned entity, which is registered as a non-deposit accepting loan company with the Reserve Bank of India. The firm, set up in 2006, is the only state-owned financial institution that lends to all the infrastructure sub-sectors.

The move to convert IIFCL into a DFI is expected to reduce the cost of borrowings for long-term infrastructure projects, at a time when the government has planned Rs 111 trillion worth of infrastructure investments under the National Infrastructure Pipeline during 2020-25.

FCI was the first DFI to be set up in India back in 1948, which is now classified as a systemically important non-banking financial company. Banks began lending to infrastructure firms in the past two decades, edging out DFIs, which became unviable. 

In the past years, ICICI and IDBI, which started as DFIs, were converted into banks, while sector-specific DFIs still exist – Export Import Bank of India, National Bank for Agriculture and Rural Development, and Small Industries Development Bank of India to name a few. But these DFIs focus on non-infrastructure sectors. 

Last year, the government approved additional equity support to the tune of Rs 15,000 crore in IIFCL, of which Rs 5,300 crore has already been infused through recapitalisation bonds in March 2020. 

The paid-up capital of IIFCL stood at Rs 9,999 crore and its cumulative gross sanction of loans stood at Rs 1.36 trillion for 605 projects as of March 31, 2020.