The creation of NaBFID in 2021 came with the ambition to merge it with its older cousin IIFCL, but the plan never took off. Momentum from the ongoing merger of REC and PFC has given the plan a new life. The idea is to create a stronger DFI that can aid India’s rapidly growing infra financing needs.
The Centre is reviving a five-year-old plan to combine two of India’s largest infrastructure lenders, two people aware of the discussions said. The proposal to merge the National Bank for Financing Infrastructure and Development (NaBFID) with the India Infrastructure Finance Co. Ltd. (IIFCL), if implemented, would create an infrastructure lending giant with a combined loan book of nearly ₹1.85 trillion.
The creation of NaBFID in 2021 came with the ambition to merge it with its older cousin IIFCL, but the plan never took off. Momentum from the ongoing merger of power sector financiers REC Ltd and Power Finance Corp. (PFC) has given the plan a new life, the people cited above said on the condition of anonymity. The idea is to create a stronger development finance institution (DFI) that can support India’s rapidly expanding infrastructure financing needs.
“The proposal, which is at a preliminary stage, seeks to reduce overlaps between the two government-backed institutions, strengthen their lending capacity and create a single infrastructure financing platform capable of mobilizing both domestic and overseas long-term capital for strategic infrastructure projects,” one of the two people cited above said. “The objective is to create a stronger infrastructure financing institution with greater scale, improved balance-sheet strength and enhanced ability to raise long-term domestic and international capital.”
Lending behemoth
The merger of REC and PFC is expected to create a new lending behemoth with a combined loan book exceeding ₹11 trillion. Encouraged by the operational and financial synergies from that transaction, expected to close by 1 April 2027, policymakers are evaluating whether similar benefits can be realized by bringing together NaBFID and IIFCL, the people cited above said.
Queries emailed to the finance ministry, the Department of Financial Services (DFS), NaBFID and IIFCL went unanswered.
The Union budget for 2021-22 announced the creation of NaBFID as a dedicated Development Finance Institution (DFI) to provide long-term infrastructure financing, while the Finance Act, 2021 incorporated enabling provisions to facilitate a tax-neutral merger of the existing IIFCL with the newly created institution, should the government decide to pursue such a move.
Although the proposal was discussed at the policy level, it did not progress further. Since then, both have evolved separately—NaBFID as India’s dedicated DFI focused on catalyzing long-term infrastructure finance, and IIFCL continuing to focus on direct lending, refinance, take-out finance and credit enhancement for infrastructure projects.
“The current deliberations effectively revive the earlier proposal, this time against the backdrop of the government’s broader strategy of creating larger, specialized state-owned financial institutions with stronger balance sheets, greater financing capacity and improved operational efficiency,” Said the second person. It also aligns with the government’s broader vision to build globally competitive financial institutions to make India a developed nation by 2047, the person added.
Hunger for funds
India’s infrastructure financing requirements are significant. The National Infrastructure Pipeline envisages investments of over $1.5 trillion across roads, railways, airports, ports, renewable energy, logistics, urban infrastructure and digital connectivity. Financing such projects requires patient, long-term capital, something commercial banks often struggle to provide because of long project gestation periods and asset-liability mismatches.
Beyond PFC, REC, NaBFID and IIFCL, some of India’s key state-owned infra lenders include the Indian Railway Finance Corp. (IRFC) which exclusively finances Indian Railways’ massive asset expansion; the Indian Renewable Energy Development Agency which funds renewable energy projects; and Housing and Urban Development Corp. which anchors long-term financing for major urban and social infrastructure initiatives.
Vivek Iyer, partner and regulatory ecosystem leader at Grant Thornton Bharat LLP, said the proposed consolidation is consistent with India’s growing infrastructure financing needs.
“One of the key drivers of economic growth for India is infrastructure, and the infrastructure demands on financing are tremendous. Having the right scale and capacity to service these needs is extremely important, and the consolidation of existing infrastructure institutions in India enables us to meet that need. The proposed merger is a step in the right direction, given the market needs the combined institutions will address and the operational efficiencies that will be generated,” he said.
Development role
NaBFID, established under the National Bank for Financing Infrastructure and Development Act, 2021, is a dedicated infrastructure DFI. During FY26, its balance sheet expanded to ₹1.44 trillion, while its lending portfolio nearly doubled to ₹1.15 trillion. The institution reported a profit after tax of ₹3,037 crore and continued to maintain zero gross non-performing assets. Beyond lending, it has expanded its developmental role through products such as Partial Credit Enhancement, municipal bond support, blended finance structures and transaction advisory services aimed at deepening India’s infrastructure financing ecosystem.
IIFCL, incorporated in 2006, reported an outstanding loan portfolio of ₹69,904 crore in FY25,, while annual sanctions reached a record ₹51,124 crore and disbursements stood at ₹28,501 crore. Cumulative sanctions crossed ₹3.06 trillion, and cumulative disbursements reached ₹1.56 trillion. The company posted a record profit after tax of ₹2,165 crore, with net worth rising to ₹16,395 crore. Asset quality also improved significantly, with gross NPAs declining to 1.11% and net NPAs to 0.35%.
Based on the latest reported financials, a combined NaBFID-IIFCL platform would have a lending portfolio of nearly ₹1.85 trillion, making it India’s largest dedicated infrastructure financing institution. The combined entity would also generate annual profits of more than ₹5,200 crore, strengthening its ability to finance large, long-gestation infrastructure projects while improving access to global debt markets and multilateral capital.
