What is Urban Infrastructure Development Fund (UIDF)?

About Urban Infrastructure Development Fund (UIDF)

• UIDF is established through the use of priority sector lending shortfall.
• Purpose: The Fund will be used by public agencies to create urban infrastructure in tier-2 and tier-3 cities.
• The focus will be on basic services like sewerage and Solid Waste Management, water supply and sanitation, construction and improvement of drains/storm water drains, etc. , and impact-oriented projects will be prioritized.
• It is managed by the National Housing Bank.
• The initial corpus for this Fund is ₹10,000 crore.
• It is established on the lines of the Rural Infrastructure Development Fund (RIDF).
• States will be encouraged to leverage resources from the grants of the 15th Finance Commission, as well as existing schemes, to adopt appropriate user charges while accessing the UIDF.
• It currently covers 459 tier-2 cities and 580 tier-3 cities. 
• UIDF Loans:
  • The interest rate on UIDF loans has been kept at Bank Rate minus 1.5 per cent.
  • The loan (Principal) will be repayable in five equal annual instalments within seven years from the date of draw, including a moratorium period of two years.
  • Interest will be payable on a quarterly basis.

What are tier-2 and tier-3 cities?

• The NHB, the nodal agency for the implementation of the UIDF, defines tier-2 cities as those with a population of 50,000 to less than a lakh, and tier-3 cities as those between one lakh to less than a million as per the 2011 census.

Key Facts about Rural Infrastructure Development Fund (RIDF):

• The RIDF was set up by the Government in 1995-96 to finance ongoing rural Infrastructure projects.
• The Fund is maintained by the National Bank for Agriculture and Rural Development (NABARD).
• Contribution: Domestic commercial banks contribute to the Fund to the extent of their shortfall in stipulated priority sector lending to agriculture.
• Main Objective: To provide loans to State Governments and State-owned corporations to enable them to complete ongoing rural infrastructure projects.
• Repayment period: Loan to be repaid in equal annual instalments within seven years from the date of withdrawal, including a grace period of two years.

Q1) What is priority sector lending?

Priority Sectors Lending is the role exercised by the RBI to banks, imploring them to dedicate funds for specific sectors of the economy like agriculture and allied activities, education and housing and food for the poorer population.The goal of a PSL initiative is to provide credit to the weaker sections of the society, as opposed to funding only profitable sectors or spaces that are solely important to economic growth.

Source: First set of infra loans for tier 2, tier 3 cities to be disbursed soon