Is there an Indian ‘BNDES’ bank and should there be one?

The Brazil Development Bank (BNDES) plays an important role in the country’s infrastructure development process especially when the country’s budgeting process leaves little room for discretionary spending.

The word ‘development’[i], however, has a very broad bearing in the case of BNDES since it lends not just for infrastructure development but also to private companies that it perceives to have a strong business model. In fact 60% of the bank’s loan portfolio comprises large companies.[ii]

China similarly has the China Development Bank (CDB) which in fact is much bigger in scale[iii] and size than the BNDES[iv] (see figure below). That left me wondering if there is a comparable bank in India with similar objectives and one that could help the country realise its $1 trillion infrastructure target by 2017.

A close examination, however, suggests that there is no such bank of comparable stature dedicated exclusively to development needs. Sectoral development banks like NABARD try to do the job; however, such banks are present in China and Brazil too in addition to the gigantic development centric banks.

Country	Main Development Bank/s[v]
Brazil	Banco Nacional de Desenvolvimento Economico e Social - BNDES
Russia	State Corporation Bank for Development and Foreign Economic Affairs – Vnesheconombank
India	Trade - EXIM Bank Industrial - IFCI, SIDBI, IDBI Agriculture – NABARD Housing – NHB Infrastructure – IDFC, IL&FS, IIFCL
China	China Development Bank Corporation
South Africa	Development Bank of Southern Africa

The State Bank of India and other nationalised Indian banks do contribute to development lending; however, the scale of such lending cannot compete with CDB or BNDES with the total assets of SBI almost equal to the BNDES.[vi]

That brings us to the question that do we need such a mammoth development bank? From an infrastructure perspective, a report by PwC in 2007[vii] shows that commercial banks (mainly public sector) and the other development banks together finance more than 90% of the total infrastructure financing.

Figure 1- India Infrastructure Finance (PwC/World Bank, 2007)

However, going forward, the capacity of the commercial banks to fund long term infrastructure debt has saturated and there is a need for alternative finance. Infrastructure bonds with tax incentives are now being floated in to the market but their contribution to total debt requirement is limited.

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[i]“Brazil: A bank too big to be beautiful,” FT, September 2012, http://www.ft.com/intl/cms/s/0/983f1bca-0234-11e2-b41f-00144feabdc0.html#axzz2X7C1DtQS

[ii] “Nest egg or serpent’s egg,” The Economist, August 2010, http://www.economist.com/node/16748990

[iii] “(Almost) all you need to know about China Development Bank,” FT, May 2013, http://blogs.ft.com/beyond-brics/2013/05/29/qa-almost-all-you-need-to-know-about-china-development-bank/#axzz2XDln6iEB

[iv] “Brazil’s BNDES and Caixa hit by downgrades,” FT, March 2013, http://www.ft.com/intl/cms/s/0/0a07be4c-924f-11e2-851f-00144feabdc0.html#axzz2X7C1DtQS

[v] EXIM Bank of India, March 2012, http://www.eximbankindia.com/press300312.asp

[vi] “My conflicted heart – the struggle for the soul of India’s largest bank,” The Economist, April 2012, http://www.economist.com/node/21553039

[vii] “Infrastructure Financing in India,” PwC, 2007, http://toolkit.pppinindia.com/pdf/infrastructure-financing-india.pdf