The government is reviving a five-year-old plan to merge the National Bank for Financing Infrastructure and Development (NaBFID) with the India Infrastructure Finance Company Limited (IIFCL) to create India's largest government-owned infrastructure financing institution. According to reports from ET Now, the proposal has gained new momentum following the successful merger of REC Ltd and Power Finance Corp (PFC), which is expected to create a new lending behemoth with a combined loan book exceeding ₹11 trillion. The merger of REC and PFC, expected to close by April 2027, has demonstrated the operational and financial synergies that can be realized through such consolidations. As per The Economic Times, policymakers are evaluating whether similar benefits can be realized by bringing together NaBFID and IIFCL, with the proposal currently at a preliminary stage and effectively reviving the earlier proposal against the backdrop of the government's broader strategy of creating larger, specialized state-owned financial institutions. Vivek Iyer, partner and regulatory ecosystem leader at Grant Thornton Bharat LLP, noted that the proposed consolidation is consistent with India's growing infrastructure financing needs, stating that "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."
A combined NaBFID-IIFCL platform would create an infrastructure lending giant with a lending portfolio of nearly ₹1.85 trillion, making it India's largest dedicated infrastructure financing institution. Based on latest reported financials, the combined entity would generate annual profits of more than ₹5,200 crore, significantly strengthening its ability to finance large, long-gestation infrastructure projects while improving access to global debt markets and multilateral capital. NaBFID, established under the National Bank for Financing Infrastructure and Development Act, 2021, reported a profit after tax of ₹3,037 crore during FY26 with a balance sheet expansion to ₹1.44 trillion and lending portfolio nearly doubling to ₹1.15 trillion. IIFCL, incorporated in 2006, posted a record profit after tax of ₹2,165 crore in FY25 with an outstanding loan portfolio of ₹69,904 crore and cumulative sanctions crossing ₹3.06 trillion. The company's asset quality improved significantly, with gross NPAs declining to 1.11% and net NPAs to 0.35%, while net worth rose to ₹16,395 crore. Beyond lending, NaBFID 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.
The merger represents a strategic move to combine two key infrastructure financing entities under a single umbrella, creating a unified platform for infrastructure financing. As reported by ET Now, the proposal 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. According to The Economic Times, 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. The consolidation aligns with the government's broader vision to build globally competitive financial institutions to make India a developed nation by 2047. India's infrastructure financing requirements are significant, with the National Infrastructure Pipeline envisaging investments of over $1.5 trillion across roads, railways, airports, ports, renewable energy, logistics, urban infrastructure and digital connectivity. Vivek Iyer emphasized that financing such projects requires patient, long-term capital, noting that commercial banks often struggle to provide this due to long project gestation periods and asset-liability mismatches.
The merger is facilitated by the Finance Act, 2021, which incorporated enabling provisions to facilitate a tax-neutral merger of the existing IIFCL with the newly created NaBFID institution. The Union budget for 2021-22 announced the creation of NaBFID as a dedicated Development Finance Institution (DFI) to provide long-term infrastructure financing. The creation of NaBFID in 2021 came with the ambition to merge it with its older cousin IIFCL, but the plan never took off. However, momentum from the ongoing merger of power sector financiers REC Ltd and Power Finance Corp (PFC) has given the plan a new life, with current deliberations effectively reviving the earlier proposal 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. Although the proposal was discussed at the policy level, it did not progress further. Since then, both institutions 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.
