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Bill approved for establishment of Development Finance Institute

Bill approved for establishment of Development Finance Institute

Recently the cabinet approved a bill to set up a government-owned Development Finance Institute (DFI) with an initial paid-up capital of Rs. 20,000.

Key points:

  • The main objective of the Government, to establish a Development Finance Institute is to raise long-term finance.
  • By establishing this government can leverage around 3 trillion rupees from the markets in a few years and can provide long-term funds for infrastructure projects and other developmental needs. In addition, the government will provide Rs 5,000 crore as grants to institutions.
  • The grant has been provided in the form of tax-saving bonds. If the Development Finance Institute borrows from multilateral or bilateral institutions, it will protect capital from loss.
  • Initially, the Development Finance Institute will be wholly government-owned and the government’s stake will be reduced to 26 percent in the next few years.
  • To attract long-term players such as insurance and pension funds, the government will provide a 10-year tax exemption in funds invested in DFIs.

Development Finance Institute:

  • These are different types of banks to be set up in developing countries, which are set up as a specialized institution to finance development projects in these countries.
  • Development finance institutions are different from commercial banks. They not only provide loans to customers, but they also act as aids in the development of important sectors of the economy. In addition, national or international development funds are used as capital in these banks.
  • It has the ability to finance various development projects at a competitive rate.

Development of Development Finance Institution in India:

  • India’s first development finance institution was established in the year 1948 as The Industrial Finance Corporation of India (IFCI)
  • Other major DFIs are IDBI, UTI, NABARD, EXIM Bank, SIDBI, NHB, IIFCL etc. Some development finance institutions have since been converted into banks. Among these, ICICI Bank, IDBI Bank etc. are the main ones.

Types of Development Financial Institutions

  • There are different types of financial institutions in India for each sector, and these financial institutions finance projects of a particular sector.
  • The National Housing Bank (NHB) deals entirely with housing projects, EXIM banks finance import-export operations.

Source – PIB

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