– India’s ambitions are monumental — transforming into a $30 trillion economy by 2047, building 100 smart cities, and ensuring seamless connectivity. However, these goals are constrained by a significant infrastructure financing gap, exceeding 5 percent of its GDP.
By Laurent Gonnet and Tushar Arora
Despite a substantial increase in public investment—central government spending has more than doubled from FY21 to FY24—private capital remains largely untapped. Institutional investors, like insurance and pension funds, allocate only 6 percent of their funds to infrastructure.
The long gestation periods and high capital requirements of infrastructure projects deter traditional lenders, exacerbating the financing gap. To achieve its ambitious infrastructure goals, India needs greater private sector involvement. Without it, the country’s grand vision may fall short.
NaBFID’s strategic significance
Established in 2021, the National Bank for Financing Infrastructure and Development (NaBFID) was created to tackle India’s infrastructure financing challenges. When we first visited NaBFID in Mumbai in December 2022, a small but focused team was working to reshape India’s infrastructure financing landscape. Fast forward to just 24 months from our first visit, and the institution has already sanctioned loans over $18 billion, cementing its position as a pivotal player in advancing India’s infrastructure development.
Established under a legislative mandate, NaBFID transcends the traditional role of a development finance institution (DFI), fixing market failures. Its mission extends beyond long-term infrastructure financing to fostering a vibrant bond and derivatives market, crucial for deepening India’s financial ecosystem.
What also sets NaBFID apart is its innovative operational framework, and a clear mandate backed by an all-encompassing legislative act. From offering market-based compensation to attract top-tier talent to its staff to pioneering strategies for mobilizing patient capital and fixing asset-liability mismatches, it focuses on addressing gaps that conventional financial institutions, like banks, have struggled to cope with.
Recognizing its strategic significance, robust governance, and the critical role of infrastructure financing in driving GDP growth, the World Bank supported NaBFID’s establishment in 2022 through a Development Policy Loan ($750 million) to India’s government to help NaBFID become a cornerstone of the country’s infrastructure financing ecosystem.
A Development Policy Loan (DPL) from the World Bank helps governments implement policy and institutional reforms to boost economic growth. In 2022, the establishment of NaBFID was one such policy measure supported by a DPL.
Progress
Since its founding in 2021, NaBFID has raised over $3 billion through bond issuances across four tranches, with an average maturity exceeding 14 years. This long-term funding base has attracted institutional investors, such as pension funds and insurance companies. This has demonstrated the credibility of the newly established institution.
On the assets side, NaBFID has disbursed over $6 billion in loans across key sectors like roads, railways, power, and urban development.
NaBFID’s growth is driven by its clear mandate, strong leadership, and robust governance. Additionally, government reforms in Public-Private Partnership (PPP) models have expanded infrastructure financing opportunities, further supporting its growth.
Creating further traction
NaBFID is in the process of unleashing its full potential. What strategies can be employed to further unlock its possibilities?
First, supporting the development of credit enhancement instruments such as partial credit guarantees, and first-loss protections could help de-risk infrastructure projects and make them more appealing to institutional investors. While the NaBFID Act envisions the use of these instruments, regulatory reforms—such as updates to Reserve Bank of India’s guidelines—are necessary for scaling them effectively.
The World Bank has collaborated with NaBFID to design credit enhancement instruments more effectively and identify policy bottlenecks. Once regulatory changes are in place, NaBFID will be well-positioned to mobilize substantial private capital by launching such instruments, accelerating infrastructure development.
Second, NaBFID can also support the development of high-quality project appraisals, impact assessment and monitoring standards, setting benchmarks for the market. By adopting global best practices, it can create robust project appraisal frameworks, improving the bankability of infrastructure projects in the Indian market.
Third, NaBFID has the potential to play a pivotal role in developing the market for innovative financing instruments. It can help scale up the use of Infrastructure Investment Trusts (InvITs), Alternative Investment Funds (AIFs), and derivatives in India’s long-term finance market. This will attract both domestic and international patient capital, fostering sustainable market growth.
Finally, NaBFID is uniquely placed to champion financing for low-carbon, climate-resilient infrastructure. By fostering investments in green technologies and sustainable projects, it can align India’s infrastructure development with its climate goals. Through concessional lending, blended finance, and equity investments, NaBFID can mainstream sustainable finance, creating a climate-resilient ecosystem and fostering long-term economic resilience.
The road ahead
NaBFID’s journey is just beginning. To scale its impact, it will need ongoing innovation, timely regulatory support, and a strong focus on sustainability. With India’s infrastructure financing needs, NaBFID must enhance its balance sheet capacity and continuously raise capital in debt and equity markets. After all, its evolving ability to mobilize long-term capital and attract private sector participation will play a critical role in supporting the goal of a Viksit Bharat – a developed India – by 2047.
As NaBFID’s managing director, Rajkiran Rai, puts it: “While NaBFID has set a target of over $59 billion of cumulative financing by 2029, its mission goes beyond lending — it aims to enhance the quality of life for Indian citizens while deepening the long-term finance market. Collaboration is vital to unlocking private capital for India’s infrastructure growth. Together with the World Bank, we aim to drive sustainable and inclusive economic development through innovative financing solutions.”
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