The state-run National Buildings Construction Corporation (NBCC) is gearing up to launch its own non-banking finance company (NBFC) later this year in a strategic move aimed at reducing borrowing costs for critical infrastructure ventures, according to two knowledgeable sources closely involved in the process.
The proposed initiative, which aims to save an estimated $108 million in interest expenses over the next two years, received positive investor response, with NBCC’s shares surging by as much as 1.8% following the Reuters report. The stock, poised to break a five-session losing streak, was last seen trading around 1% higher at 125.95 rupees each at 0834 GMT.
Unlike other state-run entities, the Indian government currently lacks a company specifically dedicated to financing infrastructure projects. NBCC’s board deliberated on the proposal to establish an NBFC in March, according to the sources, with the final operational framework expected to be formalized post-June.
Approval for the proposed NBFC venture will be sought from the new government administration following the conclusion of India’s seven-phase national elections that commenced on Friday. Additionally, the establishment of the NBFC will be contingent upon obtaining a license from the Reserve Bank of India (RBI), a step that NBCC has yet to undertake.
The move is driven by NBCC’s aim to mitigate high borrowing costs, which currently range between 12% to 14% when availing loans from other NBFCs. The establishment of an in-house NBFC could potentially reduce these costs by 1-2 percentage points, as explained by one of the sources familiar with the matter.
“The in-house NBFC will facilitate access to initial funding for redevelopment and monetization projects of various public sector entities,” noted the source.
Notably, NBCC has recently secured redevelopment projects from prominent entities such as Steel Authority of India Ltd and the Indian Railways, underscoring its expanding portfolio within the infrastructure sector.
It’s worth noting that NBCC had previously contemplated setting up an NBFC back in 2016; however, the endeavor faced setbacks and was ultimately unsuccessful.
Despite the positive reception from investors and industry insiders, NBCC refrained from providing official comments in response to email queries seeking clarification on the matter.
The impending launch of NBCC’s NBFC marks a strategic shift towards self-reliance in financing critical infrastructure projects and underscores the company’s commitment to optimizing operational efficiencies within the public sector domain.
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