RBI allows banks, NBFCs to float infrastructure debt funds

Banks and Non Banking Financial Companies  will now will be able to sponsor IDFs, which can be set up either as Mutual Funds. “Scheduled commercial banks would be allowed to act as sponsors to IDF-MFs and IDF-NBFCs with prior approval from RBI,” the central bank’s guidelines on setting up IDFs said.

NBFCs with a minimum Net Owned Funds (NOF) of Rs 300 crore and Capital to Risk Weighted Assets (CRAR) of 15 per cent has been allowed to set up IDF-MF. As far as Infrastructure Finance Companies (IFCs) are concerned, they can sponsor IDF-NBFC.

Long-term projects
In order to accelerate and enhance the flow of long term funds to infrastructure projects, Finance Minister Pranab Mukherjee in his budget speech had announced setting up of IDFs.
A bank acting as sponsor of IDF–NBFC shall contribute a minimum equity of 30 per cent and maximum 49 per cent in the fund, while for IDF-MF, they would have to follow Sebi norms.

Also, investment by a bank in the equity of a single IDF – MF and NBFC should not exceed 10 per cent of it’s paid up share capital and reserves. For NBFCs, their non-performing assets (NPAs) should be less than 3 per cent of net advances, should have been in existence for at least 5 years and earning profits for the last three years.

The investors in IDFs would be primarily domestic and off-shore institutional investors, especially insurance and pension funds which would have long term resources. IDF-MF would be regulated by Sebi while IDF-NBFC would be regulated by the RBI. Earlier, the Sebi had issued guidelines in this regard.

The government has said that the infrastructure sector requires an investment of US$ 1 trillion during the 12th Five Year Plan beginning next fiscal. Of this, 50 per cent of the funding is expected to come from the private sector.