Centre may revive NaBFID-IIFCL merger plan after REC-PFC move to build infra financing giant
A long-pending proposal to merge the National Bank for Financing Infrastructure and Development (NaBFID) with the India Infrastructure Finance Company Limited (IIFCL) is reported to have gained renewed momentum
The plan dates back to NaBFID's creation in 2021, when its enabling legislation gave its board the power to consider merging existing infrastructure-financing institutions such as IIFCL, though the merger was never carried through
Momentum has returned following the ongoing merger of two power-sector non-banking financial companies (NBFCs) — Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) — into a single, larger lender
The stated objective is to create a stronger, better-capitalized Development Finance Institution (DFI) equipped to meet India's expanding infrastructure financing requirements
Development Finance Institutions (DFIs) and NaBFID
A Development Finance Institution is a specialized financial institution set up to provide long-term "patient capital" for sectors — like infrastructure — where projects have long gestation periods and commercial banks, constrained by shorter-tenure deposits, are reluctant to lend. NaBFID was created as India's principal DFI for infrastructure under the National Bank for Financing Infrastructure and Development Act, 2021, which received presidential assent and came into force in 2021.
Key Details
- NaBFID is a statutory corporate body with an authorised share capital of ₹1 lakh crore (government holding: at least 26% in perpetuity, per the founding statute)
- It is the fifth All India Financial Institution (AIFI), joining EXIM Bank, NABARD, the National Housing Bank (NHB), and SIDBI
- NaBFID undertakes both financial functions (direct/indirect lending, refinancing) and developmental functions (institutional capacity building, market development for infrastructure bonds)
- Its founding Act empowered the NaBFID board to consider mergers/amalgamations with existing DFIs — the statutory basis for the now-revived IIFCL merger idea
The current push to merge IIFCL into NaBFID is an exercise of an option that has existed in law since 2021 but had remained unused; the REC-PFC precedent has renewed policy appetite for DFI consolidation.
India Infrastructure Finance Company Limited (IIFCL)
IIFCL is an older, standalone infrastructure DFI, incorporated in January 2006 as a wholly government-owned company under the Ministry of Finance, predating NaBFID by 15 years. It provides long-term debt to infrastructure projects across transport, energy, water and sanitation, and urban infrastructure, including through Public-Private Partnership (PPP) structures, and has historically also played a role in Viability Gap Funding-linked project appraisal.
Key Details
- Established: January 2006, under the Companies Act, as a 100% Government of India-owned enterprise
- Registered with the RBI as an NBFC-ND-IFC (Infrastructure Finance Company) since September 2013, subjecting it to RBI's prudential norms
- Functions include direct lending, refinancing of bank lending to infrastructure projects, and credit enhancement for infrastructure bonds
- A merger would fold IIFCL's older PPP-era infrastructure lending book into NaBFID's newer, larger balance sheet
Merging IIFCL into NaBFID would end the overlap between India's two dedicated infrastructure-lending DFIs, consolidating expertise and capital under a single, larger institution.
Consolidation Precedent: REC-PFC Merger
The REC-PFC merger, which is providing momentum for the NaBFID-IIFCL discussion, involves Rural Electrification Corporation (REC) merging into its parent, Power Finance Corporation (PFC) — both government-owned NBFCs that primarily finance the power sector. The combined entity is intended to create a much larger power and energy-infrastructure financing institution.
Key Details
- PFC held a majority stake (over 50%) in REC prior to the merger move, with both being government-owned NBFCs under the Ministry of Power
- The merger was announced following a Union Budget push toward consolidating public-sector NBFCs into larger institutions capable of financing energy and infrastructure at scale
- The combined PFC-REC entity's aggregate loan portfolio has been reported in the range of ₹11–17 lakh crore, depending on the reporting period, making it one of the largest NBFC lenders in India
- This is a distinct transaction from the NaBFID-IIFCL discussion, but both reflect the same policy logic of consolidating fragmented, sector-specific DFIs/NBFCs into fewer, larger, better-capitalized lenders
The REC-PFC merger is being cited as the template and political-economy precedent for reviving the older, dormant NaBFID-IIFCL merger idea — both aim to reduce institutional fragmentation in India's infrastructure financing architecture.
- NaBFID established: 2021, under the NaBFID Act, 2021; authorised capital ₹1 lakh crore
- NaBFID is the 5th All India Financial Institution (after EXIM Bank, NABARD, NHB, SIDBI)
- IIFCL established: January 2006; RBI-registered as NBFC-ND-IFC since September 2013
- REC-PFC merger: PFC held a majority stake in REC; combined entity reported to have a multi-lakh-crore rupee loan portfolio
- Legal basis for NaBFID-IIFCL merger: board power under the NaBFID Act, 2021 to merge/amalgamate existing infrastructure DFIs