NBCC, a state-run construction and real estate developer in India, is planning to establish its own non-banking finance company (NBFC) later this year, aimed at reducing borrowing costs for critical infrastructure projects, according to insiders familiar with the matter. This strategic move is projected to save NBCC approximately $108 million in interest expenses over the next two years, as per undisclosed sources closely involved in the discussions.
Following a report by Reuters, NBCC’s shares saw a surge of up to 1.8%, breaking a five-session decline streak, and were last observed to be up around 1% at 125.95 rupees each at 0834 GMT.
While the Indian government owns infrastructure financial institutions, NBCC would be pioneering among state-run companies in establishing its own unit to facilitate project financing. The proposal for the NBFC was deliberated upon by NBCC’s board in March, with further structural details expected to be finalized post-June, as indicated by the sources.
Approval for the establishment of this shadow lender would be sought from the new administration post the national polls, scheduled to conclude in June. Additionally, NBCC will need to secure a license from the Reserve Bank of India (RBI), which has not yet been applied for.
Currently, NBCC incurs borrowing costs ranging from 12% to 14% when dealing with other NBFCs, which could potentially be reduced by 1-2 percentage points through the establishment of its own NBFC, according to one of the sources.
The in-house NBFC is anticipated to facilitate the acquisition of initial capital for redevelopment and monetization ventures of other public sector entities, as stated by the sources.