THE NATIONAL BANK FOR FINANCING INFRASTRUCTURE AND DEVELOPMENT BILL, 2021 – AN OVERVIEW

THE NATIONAL BANK FOR FINANCING INFRASTRUCTURE AND DEVELOPMENT BILL, 2021 – AN OVERVIEW

Author: Riya Sharma

INTRODUCTION

The Finance Minister of India, Nirmala Sitharaman, tabled a Bill in the Lok Sabha on 22nd March, 2021. This Bill is titled “The National Bank for Financing Infrastructure and Development Bill, 2021.” It was approved by the Lok Sabha on 23rd March, 2021.

MEANING OF DEVELOPMENT BANKS OR DEVELOPMENT FINANCIAL INSTITUTION

These are the institutions endorsed by the government, chiefly to offer long-term development or project finance to one or more sectors or sub sectors of the economy, involving higher risks, which may not be viable for commercial banks to finance. IFCI, ICICI, Universal Bank, NABARD, NHB are appropriate instances of Development Banks and Institutions in India.

MAIN OBJECTIVES OF THE BILL

The motive of this Bill is to:
  1. Create the NBFID (National Bank for Financing Infrastructure and Development) in India.
  2. Advance long-term capital to the infrastructure ventures.
  3. Development of bonds and derivative markets.
  4. Continue the business of financing infrastructure and the associated matters.

SCOPE AND EXTENT

Chapter I of the proposed bill contains the preliminary provisions and states that it would extend to the whole of India. A notification in the Official Gazette by the Central Government would lead to its enforcement on such date.

ESTABLISHMENT AND INCORPORATION OF INSTITUTION- NBFID

Chapter II provides for the establishment and incorporation for such an institute. In furtherance of the purpose of this Proposed Bill, a development financial institution (DFI) shall be formulated, which would be called the “National Bank for Financing Infrastructure and Development.” It would be a body corporate with its head office in Mumbai and it may open offices, branches and agencies at any place, within the territory of India or even outside it.

Authorized Share Capital- Initially, the government will own up to 100 percent of the institution’s shares which may be afterwards reduced up to 26 percent. Shares may be retained by:

  1. The Central Government.
  2. Multilateral Institutions.
  3. Sovereign wealth funds.
  4. Pension funds.
  5. Insurers.
  6. Financial institutions.
  7. Banks.
  8. Any other institution.

AIMS OF THE INSTITUTION

The NBFID would execute the following purposes and objectives:
  1. Development objectives-
  • Coordinate with the Central and State Government, regulators, financial institutions, institutional investors and other relevant stakeholders, within or outside India’s territory.
  • Facilitate building and refining the DFIs, domestic bonds and derivative markets.

2. Financial objectives-

  • Lend or invest which may direct or indirect.
  • Entice investment from the private sector investors and institutional investors.
  • Foster sustainable economic development in India.

BOARD OF DIRECTORS AND MANAGEMENT OF NBFID

The Board of Directors of NBFID shall comprise of the following:
  1. The Chairperson
  2. A Managing Director
  3. Up to 3 Deputy Managing Directors
  4. 2 Directors nominated by the Central Govt.
  5. Up to 3 Directors elected by the shareholders (at least one of them should be a woman).
  6. Independent Directors (at least one of them should be a woman).

The overall superintendence, direction and management of the affairs and business shall vest in the Board which shall exercise all powers and do all acts and things which may be exercised or be done by the Institution.

ACTIVITIES OF INSTITUTION- FUNCTIONS AND POWERS OF NBFID

In accordance with the Chapter IV of the proposed Bill, the Institution formed under this legislation would execute the following main functions and powers:

  1. Form subsidiaries or joint ventures or branches, or enter into an agreement with them for financing or guaranteeing their liabilities, within or outside the Indian territory.
  2. Manage the maneuvers of the numerous infrastructure finance institutions.
  3. Set up trusts under the Indian Trusts Act, 1882 which includes real estate investment trusts as well as infrastructure investment trusts.
  4. Simplifying market infrastructure, investor safety, etc.
  5. Lend and invest in infrastructure projects in India’s territory or outside it.
  6. Offer loans and advances to any company, statutory corporation, trust or any financial institution funding infrastructure in or outside India.
  7. Refinancing present loans.
  8. Inciting participation from abroad, in the Indian infrastructure ventures.
  9. Dispute resolution mechanism for negotiations amid the government authorities.
  10. Borrow money from the RBI.
  11. Undertake any activity which the Central Government in consultation with the Reserve Bank may authorize.
  12. Inciting investment from the investors of the public or private sectors.
  13. Offer consultancy facilities.
  14. Facilitating training, dissemination of information and promotion of research.

PERFORMANCE REVIEW OF INSTITUTION

The external agency appointed by the Central Government shall review the performance of the Institution for the last 5 years with respect to the purpose and objectives of such an Institution as laid down in Section -4. The reviewing authority shall submit a report of its findings to the Board which shall forward a copy thereof along with the action taken, if any, pursuant to such report to the Central Government within a period of 3 months from the date of receipt of the report.

GOVERNMENT GRANTS, GUARANTEES AND OTHER CONCESSIONS

According to Chapter V of the Bill, The Central Government may provide backing to the Institution through grants and contributions. The government shall prescribe a concessional rate of Government guarantee, not exceeding 0.1 percent. Hedging costs may be reimbursed in part or in full by the government.

ACCOUNTS, AUDIT AND REPORT

Chapter VI incorporates the provisions regarding:

  1. Disposal of profits accruing to the Institution, to reserve fund- The Institution shall formulate a reserve fund to which sums may be transferred, not less than 20 percent of the annual profits accruing to the Institution.
  2. Preparation of balance-sheet and accounts- The balance sheet and accounts shall be prepared in the prescribed form and manner. The books and accounts shall be closed and balanced as on 31st March each year or such other date as the Board may determine.
  3. Audit of the Institution’s accounts- The institution’s accounts shall be audited by auditors qualified to act as auditors in accordance with Section 141(1) of the Companies Act, 2013.
  4. Returns and reports- The Institution shall furnish the returns to the Central Government and the Reserve Bank from time to time or when they require it.

MISCELLANEOUS PROVISIONS

Chapter VII of the proposed Bill contains various miscellaneous provisions such as- receivables to be held in trust, setting up of other development financial institution or DFIs, power of Central Government to make rules, power of Board to make regulations, Rules and regulations to be laid before the Parliament, protection of action taken in good faith, Sanction for enquiry, inquiry, investigation and prosecution, appointment of Directors by Institution to prevail, validity of loan or advance should not be questioned, obligations as to fidelity and secrecy, adjudication, indemnity of Directors, application of Bankers’ Books of Evidence, 1891 to the Institution, application of Sections 34A and 36D of the Banking Regulation Act, 1949 to the Institution, liquidation of Institution, power of Central Government to issue directions, overriding effect of this Act, power to remove difficulties, amendment of the Reserve Bank of India, 1934 in the manner specified in the Second Schedule and amendment of the Banking Regulation Act, 1949 in the manner specified in the Third Schedule.

IMPORTANT TERMS

Chapter I, Section 2 of the Bill is the definition clause which explains the terms related to the Act. Some of the important terms are:

  1. Financial Institution- As per Section-2(1)(i), this term shall have the same meaning assigned to it in Section-2(1)(m) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
  2. Institution- According to Section- 2(1)(l), it means the National Bank for Financing Infrastructure and Development established under Section-3.
  3. Infrastructure- As per Section-2(1)(k), it means the sectors covered in the list of infrastructure sector notified by the Central Government from time to time.
  4. Board- As per Section 2(1)(b), board means the Board of Directors constituted under Section 6.

CONCLUSION

Last week, the Union Cabinet had permitted a capital infusion of approximately Rs. 20000 Crores for the establishment of a DFI. While introducing the Bill in the Lok Sabha, the Finance Minister also said that around seven thousand infrastructure ventures have been recognized at the central and state level. So far, the Bill has been passed in one House of the Parliament and is yet to be presented in the other House of the Parliament.

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