What are DFIs? How Will They Bridge Gaps in Infrastructure Sector Lending

DFInitely, maybe!

Finance Minister announced a plan for the setting up of a Development Finance Institution (DFI) to mobilise funds amounting to ₹111cr (151.5bn). DFIs have been around since IFCI in 1948 to offer long-term financing to the industrial and infrastructural sector. Once wielders of exclusive powers as providers of finance, their role has declined.

Since the liberalisation of the 90s and growing burden of NPAs, the Narasimham Committee Report had recommended that DFIs ought to be converted to a bank or NBFC. DFIs are vulnerable to governmental support and the dispensation’s electoral obligation.

The Union Budget proposes a statutory sanction to the DFI and even a guaranteed paid-up capital of ₹10,000cr ($1.3bn). What may seem like a last-ditch effort to re-instrumentalise liquidity in the development market will need a low-cost low-tail source of funding. In any case, the potential remains.

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