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NaBFID

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NaBFID

Why in news:

  • The National Bank for Financing Infrastructure and Development (NaBFID), India’s youngest state-backed infrastructure financier, plans to introduce takeout financing products to help finance projects and allow timely exits for commercial lenders.

About Takeout Loan:

  • A takeout loan is a method of financing whereby a loan that is procured later is used to replace the initial loan.
  • More specifically, a takeout loan, or takeout financing, is long-term financing that the lender promises to provide at a particular date or when particular criteria for completion of a project are met.
  • Takeout loans are commonly used in property development.
  • A developer might secure a short-term loan to scrap an existing structure and pay a crew to build a new one.
  • Once the new structure is in place or a significant portion of it is finished, the developer might secure longer term financing to pay off the original loan.

Takeout Lending:

  • A takeout lender is a financial institution that provides long-term mortgage loans to replace short-term financing used to fund the purchase of land or the development and construction of large buildings like commercial real estate.
  • These lenders offer long-term financing and lower interest rates in exchange for mortgage payments, a portion of rent payments, and capital gains if the property is sold.
  • A take-out commitment is a written guaranty by a lender to provide permanent financing to replace a short term loan at a specified future date, if the project has reached a certain stage.

About NABFID:

  • The National Bank for Financing Infrastructure and Development (NaBFID) is a specialized Development Finance Institution in India aimed at supporting the country’s infrastructure sector.
  • NaBFID was set up in 2021, by an Act of the Parliament (The National Bank for Financing Infrastructure and Development Act, 2021).
  • It was created with the essential objectives of addressing the gaps in long-term non-recourse finance for infrastructure development, strengthening the development of bonds and derivatives markets in India, and sustainably boosting the country’s economy.

Functions of NaBFID:

  • NaBFID is expected to provide a supporting, technology-enabled ecosystem across the life-cycle of infrastructure projects as a provider, enabler, and catalyst for infrastructure financing.
  • NaBFID will work towards directly or indirectly lending, investing, and attracting investments from private sector investors and institutional investors for infrastructure projects located entirely or partly in India.
  • The harmonized list of sectors prescribed by the Central Government includes Transport and Logistics (Roads, Ports, Airports, Railways, Inland Waterways), Energy, Water and Sanitation, Communication, and Social and Commercial Infrastructure.
  • The instruments and services extended to fund such project financing requirements will be subject to the NaBFID Lending Rate (NLR) as applicable, and will range across the following types, expanding with time and market demand:
  1. Term Loans (Greenfield, brownfield, etc.)
  2. Bonds or Debentures
  3. Guarantees (Bid bonds, mobilization/advance payment guarantees, performance guarantees)
  4. Letter of Comfort (Capex LC)
  • Additionally, NaBFID will provide equity investment opportunities through Investment Trusts, bond subscription services, specific structured products for project development, and ESG-focused lending.
  • In line with its developmental objectives, NaBFID is also committed to the development of various bonds and derivative markets, including domestic capital bonds, foreign currency bonds, and green bonds – while ensuring investor protection and the implementation of robust adjudication systems.

Syllabus: Prelims

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