NEW DELHI: The Union Cabinet on Tuesday cleared a budgetary proposal to set up a dedicated infrastructure lender. Accordingly, to give a push to infrastructure creation, a Development Financial Institution (DFI) will be set up.
The DFI was proposed in the Union Budget 2021-22 by Finance Minister Nirmala Sitharaman to meet the growing need of funds by the infrastructure sector. With the Cabinet approval, the DFI Bill will now be placed in the Parliament during the ongoing Budget session for approval.
Addressing a briefing after the Cabinet meeting here, the Finance Minister said that the DFI will be formed with a seed capital of Rs 20,000 crore to provide long-term funds to the infra sector.
The government will be the 100 per cent owner of the institution initially, but its equity will be diluted in phases. As per the provisions of the Bill, the government's equity could be diluted up to 26 per cent with the balance being taken by the institutions and other investors.
Sitharaman said that the DFI will be managed by a professional board and it is expected to attract capital from the market. Half of the board will comprise non-official directors and have people of eminence in such positions. The chairmanship of the DFI will also be given to a person of eminence.
To make the DFI run on professional lines, its board will also be given the power to appoint and remove wholetime directors. Also, with the intention to attract the best talent from the market, it has been decided that the DFI will offer market driven emoluments.
Sitharaman said the long-term funding nature of the DFI will also have a positive impact on the bond market in India. According to Sitharaman, the DFI is expected to give a massive lending push worth around Rs 3 lakh crore in the next few years.
A Development Finance Institution provides risk capital for key infrastructure projects. It is considered as a key ingredient for sustainable and fast infra creation. Pension and insurance funds would be asked to invest in the DFI. (IANS)