NaBFID preps for offshore push
India's National Bank for Financing Infrastructure and Development is looking to make its debut in the offshore loan market to diversify its funding sources as it aims to borrow around Rs1trn (US$11.4bn) annually from March 2027.
The state-owned infrastructure financier is eyeing an offshore loan of up to US$500m with a five-year tenor that could come as early as the fourth quarter of 2025 and is already putting the building blocks in place to raise its profile with international investors and lenders. In July, it obtained long-term foreign and local currency issuer ratings for the first time, and is rated Baa3/BBB− (Moody’s/Fitch).
“We are planning to raise an external commercial borrowing from the offshore loan market in the December quarter of this year,” said Rajkiran Rai, managing director of NaBFID, in an interview. “The tentative size is estimated at around US$500m and the tenor will be five years. Since we have just obtained our ratings, we are monitoring market conditions to identify the optimal timing for entering the ECB [ external commercial borrowing] market, while concurrently finalising the hedging structure.”
NaBFID's foray in the international debt markets will form a critical part of its financing programme, said Rai. “NaBFID will require around Rs1trn in funding every year from March 2027 to support its fast-growing loan book,” he said.
The infrastructure lender has been regularly borrowing from the rupee market but needs to diversify its funding mix. It has raised Rs441.76bn through nine rupee bonds at an average interest rate of around 7.35% for tenors ranging from five to 20 years.
“To ensure a well-diversified funding profile, we will continue to complement domestic financing with dollar-denominated loans, bonds, and multilateral credit lines,” Rai said.
NaBFID’s loan book had grown to Rs637.63bn as of June 30, jumping 42.6% year on year.
The institution was formed to help fill India's infrastructure financing gap, which exceeds 5% of GDP according to some estimates, with long-term investors like insurers and pension funds allocating only 6% of their funds to infrastructure, according to a World Bank blog in January.
Since its inception in 2021 until the end of June, the infrastructure lender had already approved credit proposals of over Rs2.23trn, of which Rs800bn had been disbursed. This includes Rs46.69bn invested in bonds issued by infrastructure sector players. NaBFID’s loan book represented a 2% share of the overall loan book – estimated at Rs30trn – for the infrastructure sector in India.
“NaBFID’s goal is to reach 10% of the overall infrastructure loan book, as it estimates its loan disbursements to increase to Rs4trn by the end of March 2029,” said Rai. “We estimate cumulative credit proposals to cross Rs3.2trn by the end of March 2026, while cumulative disbursements are estimated to exceed Rs1.4trn, including Rs100bn through bonds.”
With such a fast-growing loan book, NaBFID can be exposed to interest rate risks, especially in a changing rates environment. To mitigate those risks, it buys hedging instruments regularly. “We are the biggest player in the interest rate swaps market, as we had Rs260bn of interest rate derivatives, including total return swaps, on our books as of March-end,” Rai said.
Prominent role
Rai foresees NaBFID’s role in financing infrastructure in India to grow larger not only as a lender, but also as a facilitator of greater involvement from the country’s private sector as well as long-term investors. Its mission is not just to fund infrastructure, but also to help develop India's bond and derivatives markets.
The Indian government is doing much of the heavy lifting to support infrastructure development as 70%–80% of the spending currently comes from the state’s budgetary resources (central and state governments and the public sector), according to Rai, who reckons the private sector will gradually increase its share.
In that regard, NaBFID is looking to the World Bank’s involvement to provide impetus to a proposed credit enhancement programme that aims to broaden the investor and issuer bases in the domestic bond market in India while bringing down the cost of borrowings.
The Reserve Bank of India published a draft framework for its partial credit enhancement programme in April under which it had proposed to reduce the capital required for credit-enhanced bonds of up to Rs10bn to be issued by corporates, special purpose vehicles and non-bank financial companies.
The RBI had proposed an applicable risk weighting of 100% and a pre-enhanced bond rating of BBB, for which the capital requirement for the PCE amounts of Rs20, Rs30, Rs40 and Rs50 would be 1.8%, 2.7%, 3.6% and 4.5%, respectively, based on a bond size of Rs100.
“We are in talks with the World Bank for a US$1bn backstop facility that is expected to bring down the cost of funds for NaBFID, which will provide the guarantee or partial credit enhancement and will also reduce the risk for investors,” said Rai.
The idea of the PCE is not new. It was first mooted in 2015 but did not take off because the rules at the time made the product costly and unfeasible.
Rai expects the final rules from the RBI and the World Bank’s backstop to lower the costs for NaBFID as well as the borrowers.
“If an airport, port or road asset that is Triple B or Single A rated wants to issue a bond, a credit enhancement or first-loss guarantee of 20% to 50% of the deal size can improve the rating by multiple notches,” said Rai. “The World Bank’s backstop will make it cheaper for us to give credit enhancement/guarantee.
“We will be launching this [PCE] product within a couple of months once RBI’s final rules are out,” said Rai.
Once issuers' bond ratings are improved by multiple notches following the PCE, “it will increase the appeal for insurance and pension funds, which cannot generally invest in bonds that are rated below AA”, said Rai. Infrastructure bonds with credit enhancements from NaBFID could pay yields of 8.5%̵–9%, which would attract long-term investors, including family offices, he said. "At the same time infrastructure firms will be able to raise long-term funds at attractive rates and it will free up credit lines for banks," Rai said.
NaBFID is able to provide longer-tenor loans of up to 30 years as its liabilities are long term.
“Typically, commercial banks can only lend in tenors of 10 to 12 years, while infrastructure assets generate cashflows for longer periods of 20 to 30 years. The relatively shorter-tenor loans currently for infrastructure borrowers cause a disproportionate stress on repayments,” Rai said.
The infrastructure financier’s longer-tenor loans can carry better structures and pricing for issuers from the sector such as hospitals and data centres that require longer construction timelines and grace periods on loan repayments, he said.