To enhance the flow of funds to the infrastructure sector, the Reserve Bank of India on September 23 said banks and non-banking finance companies (NBFCs) will be eligible to sponsor infrastructure debt funds (IDFs), which can be set up as mutual funds and NBFCs.
The RBI has opened up the IDF channel as banks and NBFCs are faced with serious asset-liability mismatches (short-term liabilities support long-term lending) when it comes to financing long-term infrastructure projects. Further, garnering resources for the projects is also proving to be a Herculean task.
This also comes at a time when the Planning Commission has projected a huge investment requirement of the order of Rs 49 lakh crore (about $1 trillion) in the Twelfth Plan (2012-17) for infrastructure projects.
Infrastructure projects include electricity, roads and bridges, ports, airports, telecommunications, railways, irrigation, water supply and sanitation, storage, and oil and gas pipelines.
The central bank has drawn up the broad parameters to enable banks and NBFCs, which are classified as Infrastructure Finance Companies (NBFC-IFC), to set up IDFs under MF and NBFC structures.
IDF floated as MF
Banks acting as sponsors to IDF-MFs would be subject to existing prudential limits including limits on investments in financial services companies and limits on capital markets exposure.
“If a bank has a mutual fund, then it can float an infrastructure debt fund, mop up resources from investors, including private equity and strategic investors, and invest the proceeds in the equity of infrastructure projects. Once the projects attain critical mass, they can exit at a profit,” said Mr P. Sitaram, Chief Financial Officer, IDBI Bank.
In the case of NBFCs sponsoring IDF-MF, they will be required to have minimum net owned funds (NOF) of Rs 300 crore; capital to risk weighted assets ratio (CRAR) of 15 per cent; and net non-performing assets of less than 3 per cent of net advances.
Further, NBFCs should have been in existence for at least five years; earning profits for the last three years and their performance should be satisfactory.
Post-investment in the IDF-MF, the CRAR of the NBFC should not be less than that prescribed and it should continue to maintain the required level of NOF.
IDF floated as NBFC
Sponsors (banks and NBFC-IFC) will have to contribute a minimum equity of 30 per cent and a maximum equity of 49 per cent in IDF-NBFC.
Like in the case of IDF-MF, banks acting as sponsor to IDF-NBFCs would be subject to existing prudential limits including limits on investments in financial services companies and limits on capital markets exposure.
In the case of NBFC-IFC floating an IDF-NBFC, the IDF must have a minimum NOF of Rs 300 crore. It should have been assigned a minimum credit rating of ‘A' or equivalent by an accredited rating agency and have a minimum CRAR of 15 per cent.
Further, the IDF-NBFC can invest only in public-private partnerships and post commercial operation date infrastructure projects which have completed at least one year of satisfactory commercial operation.
It should also be a party to a tripartite agreement with the concessionaire and the project authority for ensuring compulsory buyout with termination payment.
Post-investment in the IDF-MF, the CRAR of the NBFC should not be less than that prescribed and it should continue to maintain the required level of NOF.
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