NEW DELHI: The Union Cabinet on Tuesday approved the creation of a development financial institution (DFI) for financing infrastructure and development activities in the economy.
Briefing the media after the Cabinet meeting, finance minister Nirmala Sitharaman thanked Prime Minister Narendra Modi for his gentle nudge to set up the DFI as announced in Budget 2021.
“Past attempts to have alternative investment funds were taken up, but for various reasons, we ended up with no bank which could take up long-term risk (which is very high) and fund development,” she said.
The DFI will help raise long-term funds.
The institution will be set up on a capital base of Rs 20,000 crore and will have lending target of Rs 5 lakh crore in three years.
Its initial grant will be Rs 5,000 crore and additional increments of grants will be made within the limit of Rs 5,000 crore.
“I expect the institution to raise up to Rs 3 lakh crore ($41.36 billion) in the next few years,” the minister added.
In her Union Budget for 2021-22 presented on February 1, Sitharaman had proposed to allocate Rs 20,000 crore for setting up a development finance institution, with a view to partly fund proposed $1.5 trillion in infrastructure projects over the next few years.
The DFI will initially start with a government ownership of 100 per cent and gradually with time it would come down to 26 per cent, but not below it, Sitharaman said.