The government expects the DFI to finance a large percentage of the Rs 115-trillion spending needed for the National Infrastructure Pipeline
A government source said the Bill being vetted by the law ministry will also offer upfront government support, if necessary, to the institution to hedge its foreign money-raised loans | Illustration: Ajay Mohanty
The central government will exempt the proposed development finance institution (DFI) employees from what it called ‘ill-informed prosecution and investigation’, offering them protection from both the Central Bureau of Investigation (CBI) and the Enforcement Directorate.
A government source said the Bill being vetted by the law ministry will also offer upfront government support, if necessary, to the institution to hedge its foreign money-raised loans.
Significantly the Bill being framed by the Department of Financial Services (DFS) shall be an omnibus one, more like the Banking Regulation Act of 1949 rather than the Life Insurance Corporation Act, 1956. This means the Bill will create room for private-sector DFIs to also come up, along with the government-sponsored one.
Explaining the provisions of the Bill, a government source said the protection measures against frivolous allegations of corruption are necessary to ensure the DFI is able to take up the kind of financing needed to become a key player in the infrastructure space. The government expects the DFI to finance a large percentage of the Rs 115-trillion spending needed for the National Infrastructure Pipeline.
At present, public sector banks and other financial institutions operate under a restrictive set of anti-corruption measures — often seen as a killer of initiatives. They have to submit to the mandate of the CBI, the Central Vigilance Commission, and the Comptroller and Auditor General (CAG) of India.
A source said the Bill will exclude the DFI from the purview of the amended Prevention of Corruption Act, 2018. This will immediately place the functioning of the DFI out of the ambit of the CBI. The role of the CAG — as it exists vis-à-vis government-run banks — might continue unaltered.
These carve-outs are necessary to attract capable hands to head the company who will also get a higher retirement age than the 60 years at which all state-run company employees retire. The higher retirement age will apply to both the managing director and deputy managing directors of the organisation.
The DFS has been working on the contours of the DFI for the past one year. The authors are convinced that banks cannot finance the infrastructural spend the economy needs and so a DFI is a must. Curiously, even in the US, President Joe Biden has suggested setting up a similar institution.
The National Bank for Financing Infrastructure and Development Bill — under which the government-run DFI will come up — will also provide space for the government to offer financial support for the hedging costs. The DFI is expected to raise loans from the international markets at frequent intervals. These loans in foreign currency might need to be offset by hedging against currency risks. At present, the government offers sovereign guarantee to foreign fund-raising efforts by state-owned institutions like Power Finance Corporation, Indian Railway Finance Corporation, and the REC (formerly Rural Electrification Corporation) by charging a fee. The source said it is envisaged that the government will not charge a fee for the DFI and instead create an enabling mechanism to underwrite the hedging costs.
This support will not be available automatically for other DFIs if they come up. “We are open to consider it, but it is not a given,” added another government source.