New Delhi: With an aim of infusing greater funds into infrastructure sector, the government today cleared a tripartite agreement for setting up of Infrastructure Debt Fund (IDF) to re-finance bank debt to the sector.
The Cabinet Committee on Infrastructure (CCI) Thursday cleared the tripartite agreement for operationalising the IDFs after consultation with the Reserve Bank and other stakeholders, Finance Minister P Chidambaram said.
"There is a felt need for long-term infrastructure funding... One year after commencement date, the IDFs will step in and take over the debts of the banks up to 85 percent," he said after a meeting of the CCI.
The IDF would be based on a tripartite agreement between developer, lender (bank) and the IDF. The loans by the banks would be refinanced by the IDF so that banks have free funds for more lending.
Infrastructure projects are initially funded by banks or a consortium of banks. Such projects require long-term funding of 20-25 years, while bank funding cannot be of horizon beyond 5-7 years.
"IDFs will provide the long-term funds for the remainder of the life of the project. These frees up bank fund for further lending. This will mean new funds will flow into infrastructure, banks funds will be released one year after commencement of the project.
And, therefore, we hope that more debt funds will be available for infra projects," Chidambaram said.
Rating agency Crisil said the immediate opportunity for IDF-NBFCs to be nearly Rs 20,000 crore.
The IDF, which was proposed in the Union Budget for 2011-12 fiscal, is aimed at accelerating and enhancing flow of long term debt for funding the ambitious programme of infrastructure development in the country.
An IDF may be set up either as a trust or company... A trust based IDF (Mutual Fund) would be regulated by Sebi, while an IDF set up as a company (NBFC) would be regulated by the RBI.
The fund would try to garner resources from domestic and off-shore institutional investors, especially insurance and pension funds. Banks and financial institutions would be allowed to sponsor IDFs.
An NBFCs with a minimum capital of Rs 150 crore can set up an IDF. Such a fund would be allowed to raise resources through rupee or dollar denominated bonds of minimum five-year maturity. These bonds could be traded among the domestic and foreign investors.
Company based IDFs would be allowed to fund projects in public-private partnership (PPP) which have completed one year of commercial operations.
As regards the trust-based IDFs, the fund could be sponsored by a regulated financial sector domestic entity. It would have to invest 90 percent of its assets in the debt securities of infrastructure companies or SPVs across all infrastructure sectors.
Minimum investment by trust-based IDF would be Rs 1 crore with Rs 10 lakh as minimum size of the unit.
The requirement of infrastructure fund in the 12th Plan (2012-17) has been pegged at USD 1 trillion.