Is NaBFID a failed institution?

NaBFID will have to shut down sooner rather than later. Let the new government do it, without throwing good money after bad.

Finance Minister Nirmala Sitharaman on February 1, 2021, while presenting the 2021-2022 Union Budget, announced the establishment of the National Bank for Financing Infrastructure and Development (NaBFID), as a provider, enabler, and catalyst for infrastructure financing, with the ambition ‘to have a lending portfolio of at least Rs 5 lakh crores….in three years’ time.’

That deadline of three years is a few months behind us.

At the end of FY2023-2024, NaBFID could claim a loan portfolio of only Rs 35,342 crore, which is not even 8 per cent of ‘at least Rs 5 lakh crores’.

Is NaBFID a failing institution?

Infrastructure finance had collapsed

Banks financed infrastructure big until 2014-2015, and then it collapsed.

Infrastructure (power, telecommunications, roads, and others) financing by banks had grown from Rs 2.7 trillion in 2008-2009 to Rs 9.25 trillion in 2014-2015 — recording a big growth of ~250 per cent. In 2020-2021, outstanding infrastructure bank financing reached Rs 10.95 trillion — generating a growth of less than 20 per cent in six years.

By then, for all purposes, banks had stopped funding infrastructure projects.

Specialised private infrastructure financing institutions — such as IFCI, IDBI, and IDFC — stopped infrastructure financing. The IIFCL, a government-owned PPP financing institution, was struggling and in losses by 2018-2019.

With no finance for infrastructure from the private sector, the government thought of setting up NaBFID.

Set up post-haste

The Bill, introduced in Lok Sabha on March 21, 2021, was passed on March 23. The Rajya Sabha passed it on March 25, and the president approved it on March 28. NaBFID became operational on April 19, with Mumbai as its headquarters.

Earlier, in 2019, the government had launched a National Infrastructure Pipeline (NIP) — of about 6,800 projects with a targeted investment of Rs 111 trillion to be completed by 2025. The private sector’s share in this was more than Rs 20 trillion. In 2021, the National Monetisation Pipeline (NMP) was also launched for selling/concessioning public sector assets of Rs 6 trillion to the private sector.

NaBFID was to meet a good share of required NIP and NMP private sector finance, including by developing ‘long-term, non-recourse infrastructure financing in India’.

The government appointed the board of NaBFID and provided equity of Rs 200 billion and a grant of Rs 50 billion in 2021-2022.

Hugely disappointing

Not a single rupee of loan was sanctioned and disbursed in its full first year, 2021-2022. K V Kamath, Chairperson of NaBFID, made a flurry of statements that NaBFID would start financing projects from the first quarter of 2022-2023. No loans were sanctioned in the first or second quarter. A government press release issued in February, after Sitaraman’s review of NaBFID, informed that NaBFID made its first loan in December 2022.

NaBFID’s balance sheet for 2022-2023 indicated that it had outstanding term-loans of Rs 97.54 billion — Rs. 57.54 billion secured and Rs 40 billion unsecured. The February press release stated that NaBFID sanctioned loans of Rs 868.04 billion across sectors: roads, renewable power, ports, railways, water and sanitation, city gas distribution, etc.

The annual report or the press release shared little about specific infrastructure projects and whether these were new, under-construction, or already constructed project(s).

The abridged audited accounts statement for 2023-2024, released by NaBFID in May, informs us that its outstanding loans rose to Rs 353.42 billion, without sharing more details.

The government is no longer talking of a ‘Rs 5 trillion portfolio in three or five years’. The February press release asserts that ‘NaBFID will sanction over loans of Rs 3 lakh crore by March 2026.’ Mark the word ‘sanctions’ in place of ‘portfolio’.

NaBFID did nothing for its other mandate of developing a bond market for infrastructure financing. The February press release wryly notes that the finance minister advised NaBFID ‘to introduce a structured partial credit enhancement facility’ towards deepening the bond markets.

Do we need more evidence that NaBFID is already a failed institution!

Reform infrastructure policy and financing

Public sector financing institutions such as NHAI and IRFC are no longer raising finance for public sector infrastructure projects, forcing the government to fund public sector infrastructure from the Union Budget. PPP infrastructure projects have also dried up almost completely.

Private sector infrastructure construction has gotten emasculated due to bad policy and substantial unviability across the sectors.

When it comes to roads and highways, India has not seen a project on the build, operate, and transfer (BOT) model for many years. In the power sector, the private sector is no longer investing in thermal power projects due to bottlenecks in the distribution segment. Big policy problems exist in infrastructure projects in railways, gas pipelines, metros, and others which keep the private sector away.

The big policy and unviability issues in infrastructure projects across sectors cannot be addressed by the artificial prop of providing infrastructure financing through government-owned institutions such as NaBFID.

NaBFID will not be able to scale up infrastructure finance without running humongous losses. It would have to be shut down sooner than later. Let the new government do it, without throwing good money after bad.

Let it focus on addressing the deep-seated policy issues in the infrastructure sector to create the right conditions for the private sector to invest.

(Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream’ and ‘We Also Make Policy’.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.