• Recently, government has indicated its intent to modify India Infrastructure Finance Co Ltd (Government owned company to provide long term finance) into a DFI by increasing its equity capital by Rs. 15,000 crore.
• DFI is an institution promoted or assisted by Government mainly to provide development finance to one or more sectors or sub-sectors of the economy.
• In India, DFIs were established mainly to cater to the demand for long-term finance by industrial sector.
• Between 2000 and 2010, DFIs such as ICICI, IDBI and IDFC extended long-term finance to industry and funded greenfield infrastructure projects.
• However, DFIs started facing stress due to: paucity of low-cost funds, high concentration risk, high exposure to stressed sectors (like power generation).
Need to revive DFIs:
• Infrastructure financing is currently dominated by bank lending. However, banking sector is witnessing rising non-performing assets.
• To fund long-term infrastructure projects without the associated asset-liability mismatches.
• According to estimates of NITI Aayog, India would need around US $4.5 trillion for
investment in infrastructure by 2030.
Mains Paper 3: Economy
Prelims level: Development finance institutions