5 days ago
NaBFID set to launch credit enhancement facility early next month to boost infrastructure bond issues
New Delhi: The National Bank for Financing Infrastructure and Development (NaBFID) is preparing to roll out a key credit enhancement facility by early next month, after the Reserve Bank of India releases the final guidelines on the framework, a senior official told Mint.
The move, under which lenders will offer enhanced guarantees on bonds issued by infrastructure companies and special purpose vehicles, follows an announcement in the FY26 Union Budget authorising NaBFID to offer Partial Credit Enhancement (PCE). The facility is designed to improve the credit ratings of such bonds, making them more attractive to investors.
However, its rollout is contingent on the RBI releasing the final framework for regulated entities such as NaBFID to issue PCEs. Samuel Joseph Jebaraj, NaBFID's deputy managing director, told Mint that the RBI is expected to issue its final guidelines on non-fund-based credit facilities sometime in August, providing a new and overhauled framework for PCE by regulated entities.
'This will clear our plan to launch PCE products soon after, maybe by early next month (September),' Jebaraj said.
The RBI's revised norms are expected to allow regulated entities to offer PCEs covering up to 50% of a bond issue, up from the earlier cap of 20%. This would give NaBFID greater room to address credit rating concerns and support the fundraising plans of infrastructure companies more effectively.
'We are already funding the infrastructure sector in a big way, with additional disbursements expected to be around ₹ 70,000 crore in FY26, taking total outstanding disbursements to over ₹ 1.1 trillion," Jebaraj said. "PCE will add another product that would aid the sector to mobilise crucial funding from the market on attractive terms.'
Cumulative sanctions by NaBFID currently stand at ₹ 2.5 trillion across sectors such as roads, renewable energy, ports, railways, water and sanitation, and city gas distribution. It is expected to rise to ₹ 3.5 trillion by the end of FY26.
NaBFID is also in talks with the World Bank to collaborate on product design and risk-sharing frameworks to improve the creditworthiness of infrastructure bonds, lower borrowing costs, and strengthen investor confidence.
'Our talks with the World Bank are to share a portion of the credit risk associated with our PCE facility for the infrastructure sector. The World Bank's backing for our guarantees will further strengthen our capital allocation, allowing us to be competitive in our pricing for PCE products," Jebaraj said. "The talks with the World Bank are a work in progress, but this will not impact our plan to launch PCE, which will progress as per the plan.'
At present, discussions are under way on the extent of counterguarantees the World Bank would provide, either fully or partially. The expectation is for an 80% guarantee on NaBFID's PCE exposure, for which the institution will pay a fee.
A partnership with the World Bank would bolster NaBFID's capital efficiency, reduce its capital provisioning needs, and allow it to offer more guarantees at lower costs, ultimately encouraging more companies to tap the facility.
Spokespersons of the ministry of finance, the RBI, the World Bank and the secretary of the Department of Financial Services didn't respond to emailed queries.
While credit enhancement mechanisms help improve the credit rating of corporate bond issues, enabling issuers to access the market at more favourable terms, lenders must set aside regulatory capital to offer such guarantees, based on the underlying rating of the bonds.
India's vision of a $30 trillion economy by 2047, built on smart cities and seamless connectivity, faces a persistent infrastructure funding gap of over 5% of GDP. Public capital expenditure has more than doubled from FY21 to and FY24, but private capital remains scarce.
As things stand, insurers and pension funds, key sources of long-term finance, allocate only 6% of assets to infrastructure, deterred by long gestation risks and high capital intensity.
