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What is Infrastructure Debt Fund?
- IDFs are investment vehicles for channelizing investment into the infrastructure sector. They are sponsored by commercial banks and NBFCs in India in which domestic/offshore institutional investors, specially insurance and pension funds can invest through units and bonds issued by the IDFs.
- According to the RBI, “IDFs would essentially act as vehicles for refinancing existing debt of infrastructure companies, thereby creating fresh headroom for banks to lend to fresh infrastructure projects.”
- Infrastructure Debt Funds (IDFs) can be set up either as a Trust or as a Company.
- Hence, there are two types of IDFs: IDF-MFs and IDF-NBFCs.
- IDF-MFs can be sponsored by banks and NBFCs. Whereas IDF-NBFCs can be sponsored by banks and Infrastructure Finance companies.
- ‘Sponsorship’ means an equity participation by the NBFC between 30 to 49% of the IDF.
- Trust based IDF will be formed as a Mutual Fund, regulated by SEBI
- Company based IDF will be formed as NBFC, regulated by RBI
- An IDF-NBFC is a company and comes under the regulation of RBI. IDF-NBFCs would take over loans extended to infrastructure projects which are created through the Public Private Partnership (PPP) route and have successfully completed one year of commercial production. Such take-over of loans from banks would be covered by a Tripartite Agreement between the IDF, Concessionaire and the Project Authority for ensuring a compulsory buyout with termination payment in the event of default in repayment by the Concessionaire.
Eligibility parameters for NBFCs as sponsors of IDF-MF
NBFCs sponsoring IDF-MFs are required to comply with the following requirements:
- The NBFC should have a minimum Net Owned Funds (NOF) of Rs.300 crore; and Capital to Risk Weighted Assets (CRAR) of 15%;
- its net NPAs should be less than 3% of net advances;
- it should have been in existence for at least 5 years;
- it should be earning profits for the last three years and its performance should be satisfactory;
- the CRAR of the NBFC post investment in the IDF-MF should not be less than the regulatory minimum prescribed for it;
- The NBFC should continue to maintain the required level of NOF (Net Owned Fund) after accounting for investment in the proposed IDF and
- There should be no supervisory concerns with respect to the NBFC.
The existing Infrastructure Finance Company NBFCs (NBFC-IFC) can also sponsor IDFs. They have to meet the conditions for sponsoring an IDF-NBFC.
Here, sponsor IFCs would be allowed to contribute a maximum of 49 percent to the equity of the IDF-NBFCs with a minimum equity holding of 30 percent of the equity of IDF-NBFCs, should follow minimum CRAR and there should not be any supervisory concern.
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