Chapter: Gist of Press Information Bureau Articles

Topic: Infrastructure Debt Fund

The Government has taken several initiatives to promote private sector participation in the infrastructure sector as a result of which the share of GDP going into infrastructure investment has increased from 5% in 2007 to 7% during 2009-10 and has increased to more than 8% in 2011-12. For the XII Five Year Plan (2012-2017), the target of infrastructure investment has again been doubled to US $ 1 trillion 50% of which is envisaged from the private sector.

Q. Infrastructure Debt Fund (IDF)?

The Finance Minister in his Budget speech for 2011-12 had announced setting up of Infrastructure Debt Funds (IDFs) to accelerate and enhance the flow of long term debt in infrastructure projects. To attract off-shore funds into IDFs, it was decided to reduce withholding tax on interest payments on the borrowings by the IDFs from 20% to 5%. Wide-scale consultations with stakeholders were undertaken.

Ministry of Finance issued the guidelines for the IDFs that inter alia allowed IDFs to be set up as NBFCs or as mutual funds in June, 2011.

Regulations governing IDFs structured as mutual funds was issued by SEBI in August, 2011 and regulations governing IDFs structured as NBFCs was issued by RBI in November, 2011. The IDFs through innovative means of credit enhancement is expected to provide long-term low-cost debt for infrastructure projects by tapping into source of long tenure savings like Insurance and Pension Funds which have hitherto played a comparatively limited role in financing infrastructure in India.

Further, the IDFs set up as NBFC shall invest only in PPP projects which have successfully completed one year of commercial operation and are a party to a Tripartite Agreement with the concessionaire and the Government authority sanctioning the project.

Banks and NBFCs would be eligible to sponsor IDFs subject to existing prudential limits.

The first IDF structured as a NBFC was launched on March 5, 2012, with ICICI Bank, Bank of Baroda (BoB), Citicorp Finance India Limited (Citi) and Life Insurance Corporation of India (LIC) entering into a Memorandum of Understanding (MoU). The initial size of this IDF is expected to be Rs. 8,000 crore. IDBI along with a consortium of public sector banks has also launched an IDF structured as a NBFC with an initial equity of Rs. 1000 crore which enables it to raise funds upto Rs. 26,000 crore. IDFC has launched an IDF structured as a mutual fund. Three more funds are awaiting regulatory approval.

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