Photo: Mint (Mint)
Photo: Mint
(Mint)

RBI allows NBFC sponsored infra debt funds to raise money via short-term bonds

The move could bring down cost of borrowing for infrastructure debt funds

Mumbai: In a move that could give greater flexibility to infrastructure debt funds (IDF), the Reserve Bank of India (RBI) has allowed IDFs sponsored by non-banking finance companies (NBFCs) to raise money through short-term bonds, including commercial papers.

So far NBFC-run IDFs were allowed to raise funds only through bonds having a minimum tenure of five years.

“On a review, with a view to facilitate better AUM (assets under management) it has been decided in consultation with the government of India to allow IDF-NBFCs to raise funds through shorter tenor bonds and commercial papers from the domestic market to the extent of up to 10% of their total outstanding borrowings," the RBI said in a circular on Thursday.

According to rating agency Crisil Ltd, the move could bring down cost of borrowing for IDFs.

“This will enable them to better plan for their upcoming disbursements or debt repayments. In the current environment, it also provides them an opportunity to benefit from prevailing lower short-term interest rates," said Pawan Agrawal, chief analytical officer at Crisil.

“At the same time, the limit on such shorter tenure borrowings to just 10% of total borrowings is unlikely to alter the fundamental strength of a matched asset liability profile, which is critical for the credit quality of IDF-NBFCs. Further, Crisil-rated IDF-NBFCs maintain sufficient liquidity at all times to cover upcoming debt maturities well in advance," he said in an e-mail response.

IDFs are allowed under two structures, as non-banking finance companies and as mutual funds. RBI had initially allowed NBFC-IDFs to invest only in projects under public-private-partnership (PPP) and with a one-year operational track record. Also, these IDFs were to fund projects only through a tripartite agreement with a nodal agency (National Highways Authority of India in the case of road projects), which would protect their investment.

The central bank then eased norms for NBFC-IDFs in May 2015, allowing them to invest in non-PPP projects and projects without a project authority provided these have completed at least one year of commercial operations.

Currently, two IDFs are operational as NBFCs. L&T Infrastructure Finance set up an IDF in 2013 while India Infradebt was set up in the same year jointly by ICICI Bank, Bank of Baroda and Life Insurance Corporation of India.

IDFs were introduced with an aim to free up bank capital stuck in long-term infrastructure projects and were envisioned as a stable long-term funding source eventually.

Mutual fund IDFs, on the other hand, have more liberty in making investments as the Securities and Exchange Board of India (Sebi) has allowed them to invest even in greenfield projects.

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