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This year’s Budget proposed to create a regulatory framework to set up development finance institutions (DFIs) with a mandate to act as a provider, enabler and catalyst for infrastructure financing. Now that the government has announced its intention to make an enabling regulatory framework for setting up of DFIs in the private sector, the discourse has moved to the structure and function of such DFIs.
For a developing country like India, financing of greenfield infrastructure projects is indeed a challenge. Financing of such projects by DFIs is not a new concept in the Indian context; the earlier DFIs were created during the pre-economic liberalisation era. During that period, given the controlled nature of the economy and a protected industry, lending to industry was relatively simpler.
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Earlier this week, Governor Shaktikanta Das completed two years at the helm of the Reserve Bank of India (RBI). In a flashback, two years ago, around the time the Governor took charge, financial markets were indeed in choppy waters. The ILF&S and YES bank crises were looming large. They resulted in a major liquidity crisis, as NBFCs found it difficult to raise funds from banks and certain sectors were faced with a severe liquidity squeeze.
Though inflation was under control and subsiding, interest rates were high with the repo rate quoting at 6.5 per cent, as RBI retained its calibrated tightening stance. Most of the investments in the previous two years were government-driven and corporate loan offtake was low, with a host of growth sectors like telecom and power coming under stress.