India’s youngest infrastructure financier is elbowing into large project finance that has so far been the preserve of state-run banks, aided by its ability to raise cheap finance and give subsidized loans.
India’s youngest infrastructure financier is elbowing into large project finance that has so far been the preserve of state-run banks, aided by its ability to raise cheap finance and give subsidized loans.
Designed as a development finance institution to support long-term projects, the National Bank For Financing Infrastructure And Development (NaBFID) took birth in 2021. Though it has been in the lending market for a while, it was a recent loan deal that made banks sit up and take note.
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Designed as a development finance institution to support long-term projects, the National Bank For Financing Infrastructure And Development (NaBFID) took birth in 2021. Though it has been in the lending market for a while, it was a recent loan deal that made banks sit up and take note.
In March, NaBFID outbid State Bank of India (SBI) for a ₹9,000 crore loan, two bankers aware of the matter said. While SBI, India’s largest bank by assets, pitched 8.2% for a proposal by National Highways Authority of India’s (NHAI) infrastructure investment trust (InvIT) to raise ₹9,000 crore, NaBFID offered 8%.
“This made other lenders come to the negotiating table,” one of the two bankers cited above said. The one-year NaBFID Lending Rate (NLR) — its benchmark rate — was at 8% in March, as per its website. It has since been raised to 8.2%.
Ultimately, the NHAI InvIT loan was sanctioned jointly by NaBFID and the other banks at a rate closer to 8%.
Emails sent to NaBFID, NHAI and SBI remained unanswered.
According to one of the two bankers cited above, NHAI’s InVIT has been borrowing from banks led by SBI for the past couple of years. InvITs are collective investment vehicles to monetize infrastructure assets.
A second banker said the NHAI loan was made to the InvIT which has toll-earning assets. Moreover, NHAI’s credentials ensure it gets some of the finest pricing on bank loans.
“For banks, it is a challenge to finance such long-duration projects because most loan agreements by commercial banks in project finance have a clause for refinancing after seven to 10 years, whereas a development finance institution like NaBFID can sanction even 30-year loans,” the banker said.
The Union road ministry on 19 March said the National Highways Infra Trust (NHIT), the investment trust set up by NHAI, has raised funds for national highway stretches totalling 889 km. “In the third round of monetization, NHIT has raised unit capital of around ₹7,272 crore from marquee domestic and international investors and debt of around ₹9,000 crore from Indian lenders, to fund the acquisition of National Highway stretches…,” it said.
The push by NaBFID aligns with the government’s plan to invest heavily in infrastructure projects to drive economic growth.
To be sure, top lenders like SBI and several other banks have much bigger infrastructure loan portfolios. For instance, SBI’s infrastructure loan book stood at ₹3.95 trillion as on 31 March, accounting for 12.2% of its aggregate loans. At Bank of Baroda and Punjab National Bank, infra loans were at ₹1.12 trillion and ₹98,494 crore, respectively, as on 31 March.
In comparison, NaBFID had outstanding loans of ₹35,342.4 crore in the same period, though cumulative sanctions of loans stood over ₹1 trillion. Rajkiran Rai G., managing director of NaBFID told Financial Express on 10 June that it has already disbursed ₹45,000 crore loans so far, and expects to grow the book to ₹93,000 crore by the end of FY25. Total bank loans to the infrastructure sector stood at ₹13 trillion in FY24, showed data from the Reserve Bank of India (RBI).
Two other bankers said that although NaBFID’s loan book is still small in comparison, they believe the lender is intent on growing it.
Set up in 2021 with an initial capital of ₹20,000 crore, NaBFID’s advantage comes from its ability to raise market debt at just 15-20 basis points (bps) over sovereign securities. It can also extend cheaper loans, since the government made it a ₹5,000 crore grant to subsidize lending rates.
The lender’s total borrowings stood at ₹25,016 crore, of which bank loans were at ₹5,500 crore and non-convertible debentures (NCDs) at ₹19,516 crore as on 31 March, as per its annual report. Of the total NCDs, ₹10,000 crore was raised for 10 years and ₹9,516 crore for 15 years.
Analysts believe that going by the NaBFID Act, the government could continue providing support through grants or contributions in the future. Rating agency Icra said in a note on 25 June that if internal capital generation does not keep pace with growth, Centre may continue supporting it whenever required, though this is not expected in the next few years.
Anil Gupta, senior vice-president and co-group head of financial sector ratings at Icra said that the opportunities for infrastructure financing have gone up multi-fold, given the significant large pipeline for infrastructure projects.
“Financing is only one of the roles of NaBFID, and given its developmental role in conceptualizing and planning of such infrastructure projects, NaBFID has a bigger role to play in the overall development of the sector.”
