NBCC to establish NBFC in bid to slash borrowing costs: Report

State-owned construction and real estate developer, NBCC, is gearing up to launch its own non-banking finance company (NBFC) later this year, aiming to substantially reduce borrowing costs for critical infrastructure projects. Two insiders familiar with the matter revealed that NBCC anticipates saving a staggering $108 million in interest expenses over the next two years through this strategic move.

The proposal to establish a shadow lender was deliberated upon by NBCC's board in March, with plans for finalising the NBFC's structure slated for post-June. According to one of the sources, NBCC will seek approval for the initiative from the new administration, set to be elected at the culmination of the ongoing seven-phase national polls, which commenced on Friday.

Unlike other state-run entities that rely on government-owned infrastructure financial institutions for project financing, NBCC's venture into the NBFC space marks a departure in corporate landscape. However, the company will need to obtain a license from the Reserve Bank of India (RBI) before proceeding further, a step it has yet to undertake.

Currently, NBCC incurs borrowing costs ranging from 12 to 14 per cent when dealing with other NBFCs. The establishment of its own NBFC is expected to bring down these costs by 1-2 percentage points, offering financial relief. Additionally, the in-house NBFC is set to play a key role in securing seed funding for redevelopment and monetisation ventures involving other public sector entities, as noted by one of the sources.

NBCC's recent acquisition of redevelopment projects from Steel Authority of India Ltd (SAIL) and the Indian Railways reflects its strategic positioning to leverage the capabilities of its forthcoming NBFC. Notably, NBCC had previously contemplated setting up an NBFC back in 2016, albeit without success.

Despite the potential benefits, NBCC has refrained from offering official comments on the matter, declining to respond to email queries.

(With Reuters inputs)