NBCC establishes shadow lender to help save over $100 mn

23 Apr 2024 CW Team

India's state-run NBCC plans to establish its own non-banking finance company (NBFC) later this year in order to reduce its borrowing costs for key infrastructure projects. The sources, who preferred not to be named as the discussions are private, stated that the construction and real estate developer anticipates that this move will enable it to save $ 108 million in interest costs over the next two years.

It was noted that while the Indian government owns infrastructure financial institutions, no other state-run company has taken steps to create a unit to aid in financing projects.

NBCC's board deliberated the proposal to establish a shadow lender in March. As per the second source, the final structure of the NBFC will be determined after June.

It was further conveyed that NBCC will seek approval for the shadow bank from the new administration to be elected in June, following the conclusion of the seven-phase national polls that commenced on April 19.

Moreover, it was indicated that the company will require a license from the Reserve Bank of India (RBI), though it has yet to submit an application for it. NBCC did not respond to emails requesting comments. According to the first source, NBCC currently pays borrowing costs of 12% to 14% to other NBFCs, and this could potentially be reduced by 1-2 percentage points if it establishes the NBFC.

"The in-house NBFC will aid in obtaining initial funding for redevelopment and monetization projects of other public sector entities," stated the first source.

It was noted that NBCC recently acquired redevelopment projects from Steel Authority of India and the Indian Railways.

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