National Bank For Financing Infrastructure And Development (NaBFID) 2021:Can It Bridge India's Financing Gap?

Nayanshi Jain

Introduction

India’s journey towards Viksit Bharat 2047 will be built as much on the quality of its infrastructure as on the size of its economy. Roads, railways, ports, energy systems, urban networks and digital infrastructure form the productive backbone through which investment translates into productivity and competitiveness. Yet this ambition faces a less visible constraint: the availability of finance that matches the scale, risk and time horizon of infrastructure projects. India’s infrastructure-financing landscape is gradually shifting from historical dependence on bank credit towards a more diversified ecosystem of non-bank finance and capital-market instruments.

However, the challenge is not simply to mobilise more capital; it is to mobilise patient, appropriately structured capital for projects whose risks and repayment horizons do not fit conventional financing models.

It is against this structural constraint that the National Bank for Financing Infrastructure and Development (NaBFID) was established under the NaBFID Act, 2021 as a specialised Development Finance Institution (DFI). Its statutory mandate extends beyond infrastructure lending to supporting long-term, non-recourse infrastructure finance and the development of associated bond and derivatives markets. By March 2026, NaBFID’s balance-sheet size had reached ₹1.44 lakh crore and its lending portfolio, including bonds, ₹1.15 lakh crore, registering year-on-year growth of 73.62% and 94.30%, respectively.

The more consequential policy question, however, is whether this expansion translates into additional infrastructure investment and deeper sources of long-term capital. This article therefore examines whether NaBFID can move beyond expanding its own lending capacity to address the wider financing constraints facing India’s infrastructure ecosystem.

Background

From Development Finance Institutions to a Bank-Led System

India’s early development strategy relied heavily on specialised Development Finance Institutions (DFIs) such as the Industrial Development Bank of India (IDBI), Industrial Finance Corporation of India (IFCI) and Industrial Credit and Investment Corporation of India (ICICI) to provide long-term finance. Financial-sector reforms subsequently altered this model. The Reserve Bank of India notes that the withdrawal of concessional long-term funding and the changing financial environment made the traditional DFI model increasingly difficult to sustain; ICICI converted into a bank in 2002-03, while IDBI was converted into a banking company in 2004.

The infrastructure-financing problem, however, retained characteristics that made specialised intermediation relevant. Infrastructure projects typically involve large upfront investments, long payback periods and risks related to construction, demand, regulation and project execution. The Economic Survey identifies lumpy capital requirements, long payback periods, difficulty in mobilising affordable debt and equity, project-structuring problems, delays in clearances and land acquisition, and contractual disputes as important barriers to private participation in infrastructure.

Why Existing Financing Channels Were Insufficient

Capital markets have expanded but remain unevenly developed. India’s corporate bond market grew from ₹17.5 trillion in FY2015 to ₹53.6 trillion in FY2025, yet 85-90% of bond issuances are concentrated among highly rated AAA- and AA-rated borrowers. This limits the ability of projects with more complex or higher risk profiles to access market finance on comparable terms. The Economic Survey also emphasises the need for deeper markets, stronger market-making, wider investor participation and greater institutional investment in mid-rated securities.

The problem was therefore not simply a shortage of money. It was a gap in long-term financial intermediation and risk allocation. NaBFID was conceived to address this gap. The NaBFID Act came into force in April 2021 and explicitly established the institution to support long-term, non-recourse infrastructure financing while developing the bond and derivatives markets required for such financing.

Functioning

Long-Term Infrastructure Financing

NaBFID provides financing across infrastructure sectors including transport and logistics, energy, water and sanitation, communication, and social and commercial infrastructure. Its products include term loans for greenfield and brownfield projects, bonds and debentures, guarantees and other structured financing instruments.

Its institutional architecture is deliberately broader than conventional lending. NaBFID is regulated and supervised by the Reserve Bank of India as an All India Financial Institution (AIFI) and is wholly owned by the Government of India. Its stated role encompasses direct and indirect lending, investment and attracting private and institutional investment.

Refinancing, Credit Enhancement and Capital-Market Development

NaBFID can provide longer-tenure financing and refinancing, enabling commercial banks to reduce the duration of infrastructure exposure on their balance sheets. More importantly, its Partial Credit Enhancement (PCE) facility can strengthen the credit profile of infrastructure debt and make such instruments more attractive to institutional investors. In 2025, the permissible PCE limit was raised to 50% of the bond issue size from 20%, strengthening the potential of the mechanism to support infrastructure bond mobilisation.

NaBFID is also mandated to contribute to the development of domestic, foreign-currency and green bonds and related derivatives markets. Its role therefore extends from financing individual projects to helping create financing channels through which infrastructure assets can access a wider investor base.

Project Development and Partnerships

NaBFID provides Transaction Advisory Services (TAS) alongside financing. These services can support project preparation, financial modelling, transaction structuring and related activities, addressing financing constraints that originate before a project reaches the lending stage.

It also coordinates with central and state governments, regulators, financial institutions and institutional investors. This coordination is important because infrastructure financing depends on interactions between project developers, lenders, regulators and capital-market investors rather than on a single source of credit.

Performance

Rapid Expansion in Scale

NaBFID’s financial performance indicates rapid institutional scaling. Between FY2024-25 and FY2025-26, its balance-sheet size increased from ₹83,209 crore to ₹1,44,472 crore, while its lending portfolio, including bonds, increased from ₹59,365 crore to ₹1,15,347 crore. Total income rose to ₹7,585 crore and profit after tax to ₹3,037 crore in FY2025-26.

This establishes that NaBFID has moved beyond its initial institution-building phase and is becoming a significant infrastructure-financing institution. However, balance-sheet expansion is an indicator of financial scale, not necessarily developmental additionality.

Portfolio Composition

NaBFID’s portfolio covers both greenfield and operational/brownfield projects. As of March 2026, 41% of sanctions were directed towards greenfield projects, with the remaining 59% comprising operational, brownfield and monetisation-related projects. This provides a balance between financing new infrastructure capacity and lending against assets with more established operating profiles.

The distinction matters for evaluating NaBFID as a DFI: greenfield projects potentially offer greater additionality because they face higher construction and execution risks, whereas operational assets can provide relatively more predictable cash flows.

Financial Sustainability

NaBFID’s FY2025-26 results also indicate that rapid lending growth has so far been accompanied by positive financial performance. Profit after tax increased by 38.60% to ₹3,037 crore, while return on assets was approximately 3.34% and return on equity approximately 11.50%.

This is important because a sustainable DFI must retain sufficient financial strength to raise funds and continue lending over multiple infrastructure cycles. At the same time, profitability alone cannot establish developmental effectiveness.

The Missing Metric: Additionality

The most important limitation of the available performance indicators is that sanctions, lending growth and profitability do not establish whether NaBFID has generated financing that would otherwise not have occurred. Its deeper contribution should be assessed through three questions:

– Did NaBFID enable projects that faced difficulty securing suitable long-term finance?

– Did its intervention reduce financing constraints sufficiently to attract other investors?

– How much additional private and institutional capital was mobilised alongside its financing?

At present, therefore, the evidence supports a conclusion of strong institutional and financial expansion, but not yet a definitive conclusion that NaBFID has closed the infrastructure-financing gap. The latter requires systematic measurement of financing additionality and private-capital mobilisation.

Challenges

– Infrastructure risk cannot be solved through finance alone. Land acquisition, delayed clearances, contractual disputes, weak project preparation and poor risk allocation can undermine otherwise viable projects. The Economic Survey identifies these as significant constraints on private infrastructure participation.

– Capital-market depth remains a constraint. Despite substantial growth, India’s corporate bond market remains concentrated in highly rated issuers. This limits the ability of infrastructure projects with more complex risk profiles to access market-based finance and restricts the extent to which NaBFID can rely on institutional investors to complement its lending.

– Long-term risk pricing remains difficult. Infrastructure risks evolve over long project horizons and include construction, demand, regulatory and refinancing risks. NaBFID therefore faces a delicate balance: pricing risk too conservatively can reduce its additionality, while assuming excessive risk can weaken its financial sustainability.

– Scale cannot substitute for an ecosystem. NaBFID’s FY2025-26 lending portfolio of ₹1.15 lakh crore is substantial, but India’s infrastructure requirements extend far beyond the balance sheet of any single institution. Its effectiveness will consequently depend on whether it can facilitate a broader pool of bank, bond-market and institutional capital.

– The DFI dilemma remains relevant. NaBFID must pursue developmental objectives without compromising credit discipline. The experience of India’s earlier DFIs demonstrates why governance, professional appraisal and financial sustainability matter when public institutions allocate long-term capital.

The Way Forward

Deepen Market-Based Financing

NaBFID should use its balance sheet selectively to develop infrastructure bonds, investment trusts and securitisation structures, with the objective of moving mature infrastructure assets towards market-based refinancing. Its statutory mandate already includes developing bond and derivatives markets.

Scale Risk-Sharing, Without Socialising Risk

Expand Partial Credit Enhancement (PCE) and other carefully structured risk-sharing mechanisms to improve the investibility of infrastructure debt. However, guarantees should remain risk-priced, transparent and capped so that private investors retain appropriate incentives to assess risk. The expansion of the PCE limit to 50% provides scope for NaBFID to deepen this function.

Make Project Preparation a Core Priority

NaBFID should strengthen its Transaction Advisory Services and project-development capabilities, particularly for projects involving state governments and urban local bodies. Greater emphasis should be placed on project readiness, financial modelling, risk allocation and reliable project data before financing is committed.

Expand Sub-National Infrastructure Finance

NaBFID should increase its role in state and urban infrastructure, particularly through municipal financing, project preparation and credit enhancement. This would broaden infrastructure finance beyond large central projects and help develop a more decentralised financing ecosystem. NaBFID’s urban-infrastructure platform already provides financing and advisory support to urban local bodies.

Change How NaBFID’s Success Is Measured

NaBFID should complement conventional indicators such as sanctions, disbursements and profitability with developmental additionality indicators. Its annual reporting should track private capital mobilised, financing enabled through credit enhancement, projects reaching financial closure and projects becoming operational. The key question should shift from “How much did NaBFID lend?” to “How much additional infrastructure investment did NaBFID enable?”

NaBFID is a significant institutional response to a genuine gap in India’s infrastructure-financing architecture. Its rapid expansion demonstrates that it can provide long-term financing at considerable scale, while its credit-enhancement, advisory and capital-market functions give it tools that extend beyond conventional lending. Yet its early financial performance should be interpreted as evidence of institutional capacity, not proof that the financing gap has been solved.

The ultimate test is whether NaBFID can mobilise capital beyond its own balance sheet. If it can deepen infrastructure debt markets, improve project bankability, share risks without weakening financial discipline and attract private and institutional investors, it can become an important catalyst for India’s infrastructure ambitions. NaBFID therefore cannot single-handedly close the financing gap, but it can help transform the system through which that gap is financed.

References

Government of India. (2021). The National Bank for Financing Infrastructure and Development Act, 2021 (Act No. 17 of 2021). India Code.

https://www.indiacode.nic.in/bitstream/123456789/16802/1/A2021-17.pdf

Ministry of Finance, Government of India. (2026). Economic Survey 2025-26. Government of India.

https://www.indiabudget.gov.in/economicsurvey/index.php

Ministry of Finance, Government of India. (2026). Economic Survey 2025-26: Investment and infrastructure. Government of India.

https://www.indiabudget.gov.in/economicsurvey/doc/eschapter/echap09.pdf

Ministry of Finance, Government of India. (2024). Economic Survey 2023-24. Government of India.

https://www.indiabudget.gov.in/budget2024-25/economicsurvey/index.php

National Bank for Financing Infrastructure and Development. (2026). Annual report 2025-26. NaBFID.

https://nabfid.org/uploads/files/FinalAnnualReportFY2025-26.pdf

National Bank for Financing Infrastructure and Development. (2025). Partial credit enhancement: New paradigm for infrastructure finance. NaBFID.

https://nabfid.org/uploads/files/PartialCreditEnhancementReport_17092025.pdf

National Bank for Financing Infrastructure and Development. (2026). Investor presentation: March 2026. NaBFID.

https://nabfid.org/uploads/files/InvestorPresentation_06052026.pdf

Reserve Bank of India. (2008). Report on currency and finance 2006-08: Development finance institutions and financial-sector reforms. Reserve Bank of India.

https://systemhealth.rbi.org.in/Scripts/PublicationsView.aspx_id%3D10487.html

About the Contributor

Nayanshi is a Research and Editorial Intern at IMPRI and a student of Economics and Political Science at St. Stephen’s College, Delhi. Her research interests lie in international political economy, monetary and financial systems, public policy, developmental economics, welfare economics, behavioural economics and sustainable development.