The FAQs have been prepared by Arjav Khurkhuriya, a 2nd year, BA, LLB. (Hones.) student at Dr. B.R. Ambedkar National Law University, Sonipat. He is currently interning with LatestLaws.com.
1. What is the objective of this Act?
The prime objective of this Act is to establish the National Bank for Financing Infrastructure Development (NBFID) as the main Development Financial Institution to provide infrastructure financing.
2. What is meant by Development Financial Institution?
A Development Financial Institution is defined as an institution supported by the government to provide development finance to infrastructure projects of different sectors or sub-sectors of the economy.
3. What is National Bank for Financing Infrastructure Development?
NBFID will be established as a corporate body with authorised capital of One Lakh Crore whose shares can be held by the Central Government, multilateral institutions, sovereign wealth funds, insurance companies, banks, financial institutions, or any other institution prescribed by the Government of India. The main role of NBFID will be to provide support to various institutions for the development and promotion of long term non-recourse infrastructure financing (financing in which repayment is done only through the profits of the project financed) in India through co-ordination and cooperation between central government, state government, market regulators, financial institutions and other stakeholders. It aims at the development of a market for infrastructure financing in India through domestic bonds and derivative markets.
4. What are the main functions of the National Bank for Financing Infrastructure Development as per this Act?
- forming subsidiaries, branches, and joint ventures both in India and outside India to carry out the functions and activities of NBFID
- to maintain coordination between itself and other institutions involved in the field of infrastructure financing and to study the problems and issues related to infrastructure financing with the help of field experts, advising Central Government and Reserve Bank of India and other institutions on issues related to infrastructure financing.
- setting up of trusts like investment trust and infrastructure investment trust under the Indian Trusts Act, 1882 to assist in infrastructure financing.
- developing a deep and liquid market for bonds, loans, derivatives for infrastructure financing.
- making investment and lending loans to the infrastructure projects located in India or partially in India and partially outside India.
- supporting and providing loans to such organizations and institutions which are financing infrastructure projects located in India or partially in India and partially outside India.
- takeover and refinancing existing loans advanced to the infrastructure projects located in India or partially in India and partially outside India from the lender.
- transfer of loans and advances granted (with or without securities) to trusts.
- issuing and selling securities based upon the loans and advances held by the institutions.
- Assignment of securities issued to the institution.
5. Who are the members of the Board of Directors of NBFID?
As per Section 6(1) of the Act, NBFID is governed and managed by a Board of Directors. The Board has overall supervision and control over the operations of the NBFID. The Board of Directors includes: -
- Chairperson, appointed by the Central Government after consulting with the RBI
- Managing Director, appointed by the members of the Board upon the recommendation by the Bureau (a body notified by the Central Government) and clearance from the agencies decided by the Central Government.
- Deputy Managing Directors (maximum three), appointed by the Board upon the recommendation by the Bureau (a body notified by the Central Government) and clearance from the agencies decided by the Central Government.
- Two directors (officials of the Central Government), nominated by the Central Government.
- Up to three directors, elected by the shareholders.
- Independent directors (three or one-third of total directors whichever is higher), appointed on the recommendation of the Nomination and Remuneration Committee.
6. Which business restrictions are imposed on NBFID?
Under Section 18 of the Act, the NBFID cannot accept its own debentures and bonds as a security for a loan or advance. Also, NBFID cannot make a loan or advance to a legal entity in which one or more directors of NBFID holds some interest (owner, partner, director, employee, or guarantor).
7. How the performance of the NBFID can be assessed?
As per Section 20 of the Act, the performance of the NBFID will be assessed by an external agency appointed by the Central Government in every five years. The external agency will prepare an assessment report to review the work of NBFID in the past four years, whether NBFID has served its purpose or not. The external agency will submit this report to the Board. This report along with required actions taken by the Board will be forwarded to the Central Government by the Board itself.
8. How Government is supporting NBFID?
The Government may provide support to the NBFID through grants, contributions, cash, and government marketable securities. The Central Government will be providing the grant of Rs. 5,000 crores in the form of cash or government marketable securities at the end of the first financial year of the institution. This is stipulated in Section 21.
As per Section 22 of the Act, the Government will also provide guarantees to the NBFID at a concessional rate (not more than 0.1%) for borrowings from foreign financial and multilateral institutions.
As per Section 23 of the Act, in case of borrowings of any foreign currency the Central Government can also reimburse the NBFID in part or full, the cost which may arise due to the fluctuation in foreign exchange.
9. How other Development Financial Institutions can be set up under this Act?
Under Section 29 of the Act, any person who is interested in setting up a Development Financial Institution can make an application to the RBI for the license. A licence can be granted by the RBI after consulting with the Central Government, subject to fulfilment of criteria specified by RBI. The RBI will prescribe regulations for DFIs licensed under this Act.
10. Who has the power to make rules and regulations under this Act?
- Under Section 31(1) of this Act, the Central Government can make rules on several issues related to the provisions of the Act, some of the important issues under Section 31(2) upon which Central Government can make rules are-
- which institutions can hold the shares of NBFID.
- method of the election of directors by shareholders.
- terms and conditions for induction of independent directors in the board.
- fees and remuneration of independent directors.
- term of office for all the members of the Board of Directors.
- terms and conditions of service for all the members of the Board of Directors.
- conditions under which NBFID can enter into a contract or arrangement.
- Under Section 32(1) of this Act, the Board of Directors can make regulations on the issues related to the provisions of this Act. To make any regulation the Board of Directors requires prior approval from the Central Government and consultation from RBI. Some of the important issues under Section 32(2) upon which BOD can make regulations are-
- issues related to salaries and allowances of Managing Directors and Deputy Managing Directors.
- matters related to the transaction of business of the Board.
- matters related to the functions and transaction of business of the various committees of the Board.
- terms and conditions of service and deputation for all officers and employees.
- regarding the mechanism of determining penalties on directors and employees.
11. How investigation process can be initiated against the Chairperson, Director or any other employee of the NBFID?
Under Section 35(1) of the Act, no investigation agency can conduct an enquiry, inquiry or, investigation process without the prior approval of the Central Government in case the offence is alleged against Chairperson or any other director. Prior approval of the Managing Director is required to initiate the investigation process if the offence is alleged against any employee or officer of NBFID.
Under Section 35(2) of the Act, Courts also require prior sanction before taking cognizance of the offence punishable under any law against the employees of NBFID.
