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The National Bank for Financing Infrastructure and Development (NaBFID) is preparing to launch a credit enhancement facility by September to strengthen infrastructure bonds' appeal among long-term institutional investors like insurance and pension funds. The initiative, first announced in the interim Budget and reinforced in the full Budget, aims to improve bond ratings, making them more investible. With an initial outlay of INR 10,000 crore, the facility is expected to address the funding gap in infrastructure by attracting capital from investors bound by strict credit-rating mandates.
The National Bank for Financing Infrastructure and Development (NaBFID) is gearing up to introduce a credit enhancement facility as early as next month to attract long-term financing for India's infrastructure sector. This initiative is specifically designed to help infrastructure bonds secure higher credit ratings, making them eligible for investment by insurance and pension funds, which are typically restricted to investing in top-rated instruments. Advertisement
The full budget presented last month provided further clarity, setting the stage for NaBFID's upcoming rollout. The initial phase of the facility is expected to be launched with a corpus of approximately INR 10,000 crore, with provisions for expansion depending on how the market responds.
This move aligns with broader government efforts to deepen India's infrastructure financing ecosystem. Other institutions, including the India Infrastructure Finance Company Ltd (IIFCL) and the Small Industries Development Bank of India (SIDBI), are also anticipated to play a role in extending similar credit enhancements to support large-scale projects.
Previously, the Reserve Bank of India had allowed banks to provide partial credit enhancement for bonds issued by infrastructure companies. However, this mechanism had limited uptake due to regulatory constraints on how much credit enhancement banks could offer.
This strategic move is expected to unlock more predictable and sustainable financing options for infrastructure developers, potentially reducing their cost of capital while aligning with India's long-term development agenda.
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