About AIIB

• The Asian Infrastructure Investment Bank (AIIB) is an international development bank that provides financing for infrastructure projects in Asia.
• Headquartered in Beijing, it began operations in 2016.
• It includes 102 members worldwide (India is a founder member of AIIB).
• AIIB consists of two classes of membership: regional and non-regional members. Regional members hold 75% of the total voting power in the Bank.
• China is the largest shareholder with 26.64 per cent voting shares in the bank. India is the second largest shareholder with 7.6 per cent voting shares followed by Russia 6.0 per cent.
• India is the biggest borrower of AIIB.

Why in News?

• L&T Infrastructure Finance Company Ltd. (LTIF) has received the first tranche of $50 million of the total $100 million External commercial borrowing (ECB) loan from Asian Infrastructure Investment Bank.
• This development marks AIIB’s first loan to a non-banking financial company (NBFC) in India.
• L&T Infrastructure Finance is a leading arranger and financier of renewable energy in India.

Related information

What is External Commercial Borrowings?

• ECBs are commercial loans raised by eligible resident entities from recognised non-resident entities.
• Most of these loans are provided by foreign commercial banks and other institutions.
• As per the latest ECB framework, all eligible borrowers can raise ECBs up to USD 750 million or equivalent per financial year under the automatic route.
• The minimum average maturity period (MAMP) has been kept at 3 years for all ECBs, except the borrowers specifically permitted to borrow for a shorter period.

Who is eligible?

• All entities eligible to receive FDI are eligible borrowers under the ECB window.
• Additionally, Port Trusts, Units in SEZ, SIDBI, EXIM Bank, registered entities engaged in micro-finance activities, viz., registered not for profit companies, registered societies/trusts/cooperatives and non-government organisations can also borrow under this framework.
• Any entity who is a resident of a country which is FATF or International Organization of Securities Commissions (IOSCO) compliant will be treated as a recognised lender.

What is a Non-Banking Financial Company (NBFC)?

• An NBFC is a company registered under the Companies Act, 1956 which provides banking services without meeting the legal definition of a bank.
• They engage in the business of loans and advances, acquisition of shares, bonds, etc. issued by Government or local authority. They also deal in other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business.
• Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies are examples of NBFCs.
• The working and operations of NBFCs are regulated by the RBI.

What is the difference between banks & NBFCs?

• NBFCs lend and make investments and hence their activities are similar to that of banks; however there are a few differences:
  1. NBFC cannot accept demand deposits;
  2. NBFCs cannot issue cheques drawn on itself;
  3. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in the case of banks.