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Economy
Pradeep Kumar

06/02/21 11:30 AM IST

New Development Financial Institution Bill

In news

The Budget Session of Parliament will consider a new bill to set up a development financial institution (DFI) for the purpose of funding infrastructure projects across their lifespan

Development Finance Institution
  • A development finance institution is an agency that finances infrastructure projects that are of national importance but may or may not conform to commercial return standards.
  • In most cases, these agencies are government owned and their borrowings enjoy the comfort of government guarantees, which help bring down the cost of funding.
  • In setting up a DFI, India will return to an earlier experiment with the idea.
  • ICICI, it in original form, and IDBI were both set up as DFIs but were later converted into universal banks as it was believed that they needed access to public deposits.
  • The earlier generation of DFIs ran into the problem of financing because retail deposit access was cornered by banks and availability of long-term financing without government guarantees was limited
Significance

The legislation for setting up a development finance institution to fund infrastructure projects will allow for such institutions to be formed by the private sector

Source: PIB

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