For Lower Borrowing Costs, NBCC Plans Setting Up Its Own NBFC

NBCC, a central public sector enterprise under the Ministry of Housing & Urban Affairs and a construction and real estate developer, plans to establish its own non-banking finance company (NBFC) later this year.

The move aims to reduce its borrowing costs for significant infrastructure projects. Two sources who are directly involved in the matter shared that NBCC estimates that the establishment of NBFC will help it save USD 108 million in interest costs over the next two years.

However, the sources who wished to remain anonymous due to the confidentiality of the discussions disclosed that the final structure of the NBFC would be determined after June.

According to the sources, the NBCC board discussed the proposal to set up a shadow lender in March.

While the Indian government owns infrastructure financial institutions, no other state-run company has created a unit to assist with financing projects. The sources further revealed that NBCC would seek approval for the shadow bank from the new administration that would be elected in June at the end of the seven-phase national polls that has begun.

However, the company would also require a license from the Reserve Bank of India (RBI), which it has not yet applied for. NBCC did not respond to emails seeking comments.

Currently, NBCC pays between 12 per cent to 14 per cent in borrowing costs to other NBFCs. However, the establishment of an NBFC could lower the interest rate by one to two percentage points, says the first source.

"The in-house NBFC will help in getting seed money for redevelopment and monetisation projects of other public sector entities," added the first source.

NBCC recently won redevelopment projects from Steel Authority of India and the Indian Railways.