Govt launches $1-billion infra fund

The government on Tuesday launched $1 billion (Rs 5000 crore) Infrastructure Debt Fund and sought to mobilise resources from insurance and pension sectors for development of infrastructure and attain high economic growth.

 "To give thrust to investment in infrastructure sector and to attain GDP growth rate of 8 per cent, there is an immense need for financial products such as IDFs, Takeout Finance and Credit Enhancement scheme to fill the financial gap in the infrastructure sector," Finance Minister P Chidamabram said after launching the maiden fund of Indian Infrastructure Finance Company. 

IDF was proposed by the then finance minister Pranab Mukherjee in last year’s budget. The fund is going to be of help for India, which requires $1 trillion in the next five years to restructure the country’s infrastructure in the 12th Five-Year Plan.

 Speaking on the occasion, IIFCL Chairman and Managing Director S K Goel said the IDF will complement commercial banks in providing the required long term funding for infrastructure sector and help in addressing their asset liability mismatch problems.

 Goel further said that IIFCL is targeting an initial corpus of $1 billion by attracting both domestic and international investors.

 The fund will raise the required funds through mutual funds and not non-banking finance company (NBFC). The regulations for IDF, through mutual fund and NBFC route, were issued by the financial regulators, Sebi and RBI following the announcement made in 2011-12 Budget.

 Analysts in the past have appreciated the process of ‘takeout financing’, a process in which banks provide loans to infrastructure organisations and the loans provided will be taken out of their books by IIFCL. This also helps banks steer clear of asset-liability mismatch and it also helps in freeing up their funds to be given as loans to other companies. 

The Finance Minister also handed over in-principle approval letters issued by IIFCL Asset Management Company Limited (IAMCL) to one power project in Jharkhand and one rural water project in Andhra Pradesh. Both the projects are in operational phase. 

The IDF scheme will mainly undertake investment in debt securities or securitised debt instruments of infrastructure companies, infrastructure capital companies or infrastructure projects, SPV, bank loans etc. The investment objective is capital appreciation and trading on the stock exchange, aimed at development of bond market in the country.