At a time when the highly-stressed banking sector is unable to finance India’s creaking infrastructure, the government is launching a fully-dedicated Rs 40,000 crore fund, with the help of foreign investors to give a leg-up to patchy roads, rail and highways holding back economic growth.

To be launched next week under the aegis of National Investment and Infrastructure Fund (NIIF), this will be India’s first sovereign wealth fund to finance long-term infrastructure projects.

“The government will maintain an arm’s distance. It will eventually have not more than 49 per cent equity in it. All investment decisions will be taken by investment company of NIIF,” a top official source told Deccan Herald.

Finance Minister Arun Jaitley is expected to launch NIIF at the India Investment Summit on February 4-5. The size of the fund will be Rs 40,000 crore, with an initial capital of Rs 20,000 crore.

Countries, such as the UK, the UAE, Singapore, Russia and Australia, have already expressed their interest in the fund.

“The government may have finalised at least two overseas investors for the launch,” the source said on the condition of anonymity.

Similar fund in Singapore is called Temasek, while in the UK, it is known as the Green Investment Fund.

Until now, the basic model of India’s infrastructure financing was somewhat different, where the Centre borrowed funds from the World Bank or Asian Development Bank, or the Japan International Cooperation Agency, and gave it to implementing authorities in the states.

But the new initiative will change the way infrastructure projects are financed in India, the official said.

According to the latest Reserve Bank of India data, the stressed loan in the banking sector reached 24 per cent of their total advances by June 2015, from 22.9 per cent, in the same period previous year.

As of date, the total infrastructure exposure to the bank loans are Rs 8,40,000 crore. Out of this, Rs 2,00,000 crore worth of loans are stressed.

Prime Minister Narendra Modi had, earlier this month, cleared 42 stalled projects in the infra sector, involving Rs 1.15 lakh crore of investment.