The audit committee of the board of banks shall review the compliance to the above conditions on a half yearly basis, RBI said (Photo: Aniruddha Chowdhury/Mint)
The audit committee of the board of banks shall review the compliance to the above conditions on a half yearly basis, RBI said (Photo: Aniruddha Chowdhury/Mint)

Put in place board-approved policy for making investment in InvITs: RBI to banks

  • Banks and insurance companies have not been investing in InvITs because of regulatory restrictions
  • Banks will lend to only those InvITs where none of the underlying SPVs, which have existing bank loans, are facing ‘financial difficulty’, RBI said

The Reserve Bank of India (RBI) on Monday allowed banks to lend to infrastructure investment trusts (InvITs), provided none of the underlying special purpose vehicles (SPVs), which have existing bank loans, are facing "financial difficulty".

"Banks and other stakeholders have been seeking clarity on provision of credit facilities to InvITs. The matter has been examined and it has been decided that banks may be permitted to lend to InvITs...," said RBI.

According to credit rating agency Icra, InvITs are collective investment vehicles that enable developers of infrastructure assets to monetize their assets by pooling multiple assets under a single entity (trust structure). The regulations for InvITs were notified by the Securities and Exchange Board of India (SEBI) in September, 2014.

Banks, RBI said, need to put in place a board-approved policy on exposures to InvITs which shall cover the appraisal mechanism, sanctioning conditions, internal limits, monitoring mechanism, among others.

The central bank also put in certain other riders to this relaxation. It said that banks shall undertake assessment of all critical parameters, including sufficiency of cash flows at InvIT level to ensure timely debt servicing.

"The overall leverage of the InvITs and the underlying SPVs put together shall be within the permissible leverage as per the board approved policy of the banks. Banks shall also monitor performance of the underlying SPVs on an ongoing basis as ability of the InvITs to meet their debt obligation will largely depend on the performance of these SPVs," it said.

According to RBI, since InvITs are trusts, banks should keep in mind the legal provisions in respect of these entities especially those regarding enforcement of security.

Moreover, the audit committee of the board of banks shall review the compliance to these conditions on a half yearly basis.

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