Mumbai: The Reserve Bank of India (RBI) on Friday allowed banks and non-banking financial companies (NBFCs) to set up infrastructure debt funds in the form of NBFCs or mutual funds. This will help tap the vast savings of Indian households to meet infrastructure financing needs.
The Union government gave its nod to set up such a fund in the fiscal 2012 budget to enhance the flow of long-term money into infrastructure projects. Capital market regulator Securities and Exchange Board of India, or Sebi, has already allowed mutual fund companies to set up such a fund.
India will need $500 billion investment in the infrastructure space by 2013, but Planning Commission chairman Montek Singh Ahluwalia has said the target could be missed. The shortage could be as much as 11-12%, Ahluwalia had said last Sunday.
The government has introduced measures to ensure flow of money into the infrastructure space, including increasing the limit for foreign institutional investors in the debt of infrastructure firms. It has also allowed a tax rebate for investments in infrastructure bonds of up to Rs 20,000, over and above the permitted tax-saving investment limit of Rs 100,000.
However, the capital required to set up such a fund is high. An NBFC sponsoring an infrastructure debt fund in the form of a mutual fund should have a minimum net-owned fund (NOF), or paid up equity and free reserves, of Rs 300 crore and a capital adequacy ratio of 15%.
The net non-performing assets (NPAs), or the bad debt after provisioning, should be less than 3% of advances.
The NBFC should have been in existence for at least five years and profitable in the last three years, “and its performance should be satisfactory”, RBI said in its notification.
“The NBFC should continue to maintain the required level of NOF after accounting for investment in the proposed fund,” RBI said. If the debt fund is in the form of an NBFC, the bank or the NBFC floating the fund will have to contribute a minimum equity of 30% and a maximum of 49%.
The debt fund should have a minimum credit rating of ‘A’ or an equivalent rating from any rating agency. Triple-A is the highest rating. The debt fund should only invest in public-private partnership plans with at least one year of “satisfactory” commercial operation.
The maximum exposure such a debt fund can have to a borrower or a group of borrowers will be 50% of its total capital funds. Additional exposure up to 10% will be allowed at the discretion of the board of the fund.
India Infrastructure Finance Co. Ltd, or IIFCL, a government-owned infrastructure finance firm, is planning to float such a fund, said its chairman S.K. Goel.
“We hope to get the approval by October this year and it will take about seven-eight months to float the fund,” said Goel.
Goel said IIFCL can meet RBI norms and will follow the NBFC route to float the fund.
L&T Infrastructure Finance Co. Ltd chief executive Sumeet Maheshwari said his firm would be interested in floating an NBFC debt fund. Sebi’s board in July approved a framework and allowed funds and firms existing for at least five years in the infrastructure financing sector to set up infrastructure debt funds.