Financial institutions for infrastructure
Infrastructure funding needs of the country by the Central Government
To solve this problem, a proposal has been made to establish a Development Financial Institute (DFI).
key points of Financial institutions for infrastructure
■ The plan to set up an institution to finance infrastructure is being considered a positive step as banks do not have long-term money to finance such projects.
■ Banks cannot give loans for such projects because it reduces their lending capacity.
Need for DFI for infrastructure financing in India
■ This will increase capital inflows and activate capital markets, thereby promoting economic growth.
■ Need to improve long-term finance.
■ Necessary to increase the availability of loans for infrastructure and housing projects.
■ Credit flow for infrastructure related projects can be improved.
■ In 2017, the RBI had specified that such institutions could not only meet the long-term financing needs of the Indian economy but also fill the long-term financing gap.
■ Thus if the government wants to solve the social, cultural, regional, rural and environmental concerns of the country then DFI It will be necessary to revive the concept of.
Difference from commercial banks
■ These institutions strike a balance between the operational parameters of commercial banks on the one hand and development responsibilities on the other.
■ DFIs are not only lenders like commercial banks, but also help in the development of important sectors of the economy.
Development of DFI in India
• Indian Industrial Corporation (IFC) was India’s first DFI which was launched in the year 1948.
■IDBI, UTI, NABARD, EXIM Bank, SIDBI, NHB, IIFCL etc. are other major DFIs.
■ Later many of these institutions were merged into banks like ICICI Bank, IDBI Bank etc.
Development Finance Institute
■ These are institutions specifically established to provide finance to development projects in developing countries.
■ The source of capital of these banks is national or international development funds.
■ It has the ability to provide finance to various development projects at competitive rates.
Classification of Development Financial Institutions
■ Sector specific financial institutions: These financial institutions focus on providing finance to projects in a particular sector. For example, NHB is completely concerned with housing projects while EXIM Bank is oriented towards import-export operations.
■ Investment institutions: These provide services designed to facilitate business operations. For example, Capital Expenditure Financing and Equity Offerings, including Initial Public Offerings (IPOs) such as: LIC, GIC and UTI.