Reserve Bank of India Permits NaBFID to Participate as an AIFI in Financial Markets

Posted On - 17 February, 2025 • By - Suraj Jagtap

The Reserve Bank of India (RBI) has announced significant updates regarding the participation of the National Bank for Financing Infrastructure and Development (NaBFID) in financial markets. Through circular RBI/2024-25/101 (FMRD.DIRD.No.09/14.03.004/2024-25) dated January 01, 2025, the RBI has formally clarified and updated its guidelines on this matter.

Key Highlights:

  • Regulatory Supervision: NaBFID will function as an All-India Financial Institution (AIFI) under Sections 45L and 45N of the Reserve Bank of India Act, 1934.
  • Permitted Market Activities: As an AIFI, NaBFID is authorized to engage in:
    • Credit Default Swaps as per Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022.
    • Repo Transactions under the Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018.
  • Updated Guidelines: RBI has revised the following Master Directions to clearly state that NaBFID can participate as an AIFI in financial markets:
    • Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022.
    • Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018 (Updated as on November 28, 2019).
  • Immediate Applicability: These Directions come into effect immediately from the date of the circular.
  • Regulatory Authority: The RBI has issued these Directions under Section 45W read with Section 45U of the Reserve Bank of India Act, 1934[1].

Implications for Market Participants:

This move is expected to enhance liquidity and depth in the financial markets, particularly in infrastructure financing. Eligible market participants should take note of these developments and adjust their operational frameworks accordingly.

The inclusion of NaBFID in financial market activities is expected to:

Enhance liquidity in credit and repo markets.

Deepen the financial ecosystem for infrastructure financing.

Extend investment avenues for market participants.

Conclusion

This regulatory development underscores RBI’s focus on strengthening financial markets and facilitating infrastructure funding through NaBFID. Market participants, including financial institutions and investors, should integrate these updates into their strategic frameworks to leverage emerging opportunities in the infrastructure financing space.

[1]  https://www.pdicai.org/Docs/RBI-2024-25-101_212025144730637.pdf