NaBFID in talks with ADB, WB for counter-guarantees to infra projects

DFI's loan book expected to touch Rs 3 trillion by FY28

The National Bank for Financing Infrastructure and Development (NaBFID), a specialised development-finance institution backed by the government, is in talks with multilateral agencies like the World Bank and Asian Development Bank (ADB) on counter-guarantees for credit enhancement to infrastructure projects in India.

 

The infrastructure financier is identifying entities for credit enhancement.

 

Rajkiran Rai G, managing director, told Business Standard these were guarantees for instruments and might not add much to assets.

 

“They help to further the broad mandate of developing fund-raising avenues like the bond market in the country,” he said.

 

Credit enhancement has an arrangement by which if there is a bond default NaBFID will be the first one to pay investors without waiting for the entity (issuer) to make the payment. It is a first-loss guarantee. Multilateral agencies provide counter-guarantees, which are like reinsurance.

 

Besides the World Bank, other multilateral agencies like the ADB have experience in providing counter-guarantees, whose benefit is that they reduce risk weightings, ie capital to be set aside for exposure to the issuer and helps to offer credit enhancement at a low rate.

 

NaBFID expects to do credit-enhancement deals in the later part of 2025-26 (FY26) in renewable-energy and annuity-based road projects. That would push ratings for debt of entities to “AA” or “AA+” and make them eligible to get investment from insurance and pension funds looking for long-term investment. NaBFID gives first-loss guarantees, will do a complete risk assessment of the issuer, and monitor the performance.

 

Commercial banks use a host of technologies in retail and personal loans for underwriting, risk management, monitoring and product development but their use in project finance is in a nascent stage.

 

“In project finance there is not much technology in processing. So that is what we are building now,” Rai said.

 

NaBFID is developing a system for underwriting loans, and it is expected to be ready in three months.

 

“Our scope will expand to cover monitoring systems and sectoral analysis, etc. This being project finance, manual intervention will be there. It is not that you feed data on income and your housing loan eligibility will come,” Rai added.

 

This technology platform is a precursor to the data repository the financier is planning. The aim is a one-point solution for anything on project finance. The lender is working on building blocks for technology adoption. Artificial intelligence will be used, he added.

 

At present the infrastructure-finance books in the country are about ₹30 trillion. Of that, about ₹13 trillion is with banks and around 17 trillion is with non-banking financial companies.

 

Rai said: “NaBFID’s books have crossed ₹60,000 crore. We already have a 2 per cent market share. And the way we are growing, the books are expected to reach ₹3 trillion by 2027-28.”

 

According to India Ratings, the top 20 borrower accounts of NaBFID constituted 90.50 per cent of the loan books as of June 30 2024, moderating from 94.54 per cent as of March 31, 2024.

 

Among the top 20 borrower accounts, about 63.18 per cent are in the AAA category whereas 23 per cent are in the AA- to AA+ segment. 

Eyeing a fillip

 

> Counter guarantees reduce cost of funds to debt issuers

> Attract long-term funders pension, insurance

> Refinance via guarantee based bonds to free-up bank’s funds

> Focus on renewable energy, annuity based road projects