The Union government has proposed setting up a Development Finance Institution in a bid to mobilise resources required to fund the ambitious national infrastructure pipeline.

Finance minister Nirmala Sitharaman while presenting the union budget on Monday said that the National Infrastructure Pipeline announced in December 2019 has been expanded to 7,400 projects from 6,835 projects at the time of launch. The cumulative investment is estimated at over Rs 100 lakh crore.

“Infrastructure needs long term debt financing. A professionally managed development financial institution is necessary to act as a provider, enabler and catalyst for infrastructure financing. Accordingly, I shall introduce a Bill to set up a DFI,” Sitharaman said in her budget speech.

“I have provided a sum of Rs 20,000 crore to capitalise this institution. The ambition is to have a lending portfolio of at least Rs 5 lakh crores for this DFI in three years time,” she said.

A DFI finances infrastructure projects and the terms of finance could be different to that of traditional lenders. This is not the first time the government is experimenting with the idea of having a specialised institution.

ICICI and IDBI started as DFIs but were later converted to universal banks as these institutions struggled with asset-liability mismatches. They were unable to access long term funds without government guarantee and commercial banks cornered retail deposits.

But, today the capital market is more robust and there is access to global funds and multilateral agencies.