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Informist, Thursday, Sept. 18, 2025

 

--Banking secy Nagaraju launches NaBFID's partial credit enhancement facility

 

NEW DELHI – M. Nagaraju, secretary in the finance ministry's Department of Financial Services on Thursday launched the National Bank for Financing Infrastructure and Development's partial credit enhancement facility. This was the first major launch of a partial credit enhancement facility in India after the Reserve Bank of India issued comprehensive guidelines on such activity in August. Finance Minister Nirmala Sitharaman had in the Union Budget for 2025-26 (Apr-Mar) announced that the body will set up this facility.

 

According to the updated guidelines, the RBI allowed regulated entities to extend partial credit enhancement to bonds issued by corporates, special purpose vehicles, and non-deposit taking non-bank lenders with a minimum asset size of INR 10 billion. Under the balance sheet, the credit facility to the extent drawn will be treated as an on-balance sheet item. The undrawn facilities will be an off-balance sheet segment, the regulator had said. 

 

Under the scheme, the development finance institution will provide a contingent line of credit to a low-rated issuer's bond to be used in case of a cash flow shortfall. It covers a specified portion of the bond's pricipal and interest payments. With the All India Financial Institution's guarantee, the aim is to draw better ratings for lower rated paper, reduce the cost of borrowing, and diversify sources of infrastructure financing away from bank credit, National Bank for Financing Infrastructure and Development and Crisil Intelligence said in a report.

 

"By improving the credit profile of infrastructure bonds, PCE (partial credit enhancement) unlocks access to long-term capital from insurance companies, pension funds, and other institutional investors," the development finance body's Managing Director G. Rajkiran Rai said in the report. "The recent policy push to operationalise a dedicated PCE facility under National Bank for Financing Infrastructure and Development marks a decisive step toward deepening India's bond market and mobilising patient capital for infrastructure."

 

The success of the facility will depend on a conducive ecosystem, the report said. Issuers would need tangible rating upgrades, pricing advantages and well-structured products to use the facility. Meanwhile, investors need awareness, transparency, and confidence in the backer. National Bank for Financing Infrastructure and Development is the nodal agency for infrastructure financing in the country, and the youngest development finance institution in India, set up in 2021. It is regulated by the RBI.

 

The priorities for accelerating offtake of partial credit enhancement include product innovation, market confidence, pricing advantage, investor awareness and simplifying process documentation, among others, the report said. The de-risking of investing in high-yielding bonds should also draw in institutional investors and deepen India's corporate bond market.

 

"Our analysis indicates that the INR 5 trillion-INR 8 trillion funding gap in infrastructure that should come from corporate bonds, can be funded by investments from life insurance, pension funds and provident funds, provided their infrastructure investments meet the relevant regulatory requirement," the joint report said.   End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Kabir Sharma and Anshul Choudhary

Written by Aaryan Khanna

Edited by Tanima Banerjee

 

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