NaBFID in talks with the World Bank to boost infrastructure financing

New Delhi: The National Bank for Financing Infrastructure and Development (NaBFID) is in advanced talks with the World Bank to help reduce the cost of financing infrastructure projects, a top official said.

The two entities will share credit risk and enhance ratings of corporate bond offerings. The collaboration will leverage credit enhancement facilities to boost creditworthiness and lower borrowing costs for infrastructure firms.

“We are talking to the World Bank to share a portion of credit risk associated with our partial credit enhancement (PCE) facility for the infrastructure sector. We have the mandate to guarantee up to 20% of corporate bonds that will help these issues to mobilize funds at a lower cost for infrastructure development,” NaBFID deputy managing director Samuel Joseph Jebaraj said over the phone.

The FY26 Union budget allowed NaBFID to provide PCE facilities to corporate entities and special purpose vehicles (SPV) of infrastructure projects. Essentially, NaBFID will guarantee up to 20% of such bond issues. The facility aims to improve the credit ratings of infrastructure bonds by one or two notches.

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“World Bank backing for our guarantees will further strengthen our capital allocation, allowing us to be competitive in our pricing for PCE products. The talk with the World Bank now is on the quantum of counter-guarantees they are willing to price, either 100% or lower. We will be paying a fee to get their backing for credit enhancement services,” Jebaraj added.

Spokespersons of the finance ministry and World Bank didn’t respond to emailed queries.

Financing gap

The move comes as India ramps up efforts to bridge an infrastructure financing gap exceeding 5% of GDP, even as it strives to become a $30 trillion economy by 2047. While public spending has surged, private capital remains largely untapped, with institutional investors like insurance and pension funds allocating just 6% of their portfolios to infrastructure.

Partnering with World Bank will strengthen NaBFID, lowering its capital requirements for PCE, a person aware of the matter said. This, he said, will help the financial institution provide guarantees for more bonds and also lower guarantee fees, which will encourage more corporates to avail of the product.

“The partnership will strengthen (NaBFID’s) capital, allowing guarantee of more bonds, lower fees, and make PCE more attractive for investors,” the person said on the condition of anonymity.

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To be sure, high capital requirements and long timelines of infrastructure projects deter traditional lenders, widening the financing gap. Strengthening the corporate bond market is key to unlocking funds, but high borrowing costs have often kept many investors away.

Overcoming hurdles

NaBFID’s PCE facility aims to change this by improving bond ratings and making corporate bonds a viable funding option for infrastructure.

NaBFID has already filed a preliminary project report (PPR) with the finance ministry for a tie-up with the World Bank and will conclude the deal after getting an agreement on the quantum of counter-guarantee to be provided by the multilateral development bank (MDB) on the partial credit enhancement (PCE) offered by NaBFID, the person quoted above said.

Credit enhancement involves lenders providing guarantees to improve the credit ratings of bonds issued by corporations, enabling them to access funds from the bond market on better terms. Lenders are required to set aside capital for credit enhancement, which varies depending on the bond’s rating.

NaBFID’s partnership with the World Bank aims to enhance credit ratings for infrastructure corporate bonds through its PCE facility, improving market access for lower-rated issuers, reducing reliance on bank lending, and strengthening India’s corporate bond market, said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap Llp, a financial advisory firm.

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“Credit enhancement has long been a powerful tool in fixed-income markets, helping issuers with suboptimal ratings access funds at competitive rates. By providing a credit uplift—potentially improving bond ratings by multiple notches—the PCE facility can unlock significant liquidity from institutional investors such as insurance companies, pension funds, and provident funds, which typically prefer AA-rated and above securities,” he said.

“The World Bank’s backing could be the catalyst needed to scale PCE adoption. A counter-guarantee from a multilateral development bank (MDB) would lower the cost of credit enhancement, making bonds a more viable alternative to traditional project loans. Given the long-term nature of infrastructure financing, a well-functioning PCE framework can facilitate bond issuances that match project tenors, ensuring funding stability,” he added.

Srinivasan added that for NaBFID’s credit enhancement initiative to succeed, key challenges must be addressed, including regulatory adjustments to improve adoption, optimizing guarantee costs to enhance affordability, ensuring PCE-backed bonds achieve meaningful rating upgrades for institutional investors, boosting secondary market liquidity through better trading mechanisms, and structuring bonds to align with investor preferences for liquidity and flexibility.