Corporation Bank plans to float Infra Debt Fund

State-owned Corporation Bank today said it was drawing up plans to float an Infrastructure Debt Fund (IDF) and would soon approach its board for approval.

"We had always asked for approval to set up such a fund. Now the final guidelines have come and we are definitely interested to float one. The matter will be placed before our board in the near future," RN Pradeep, Chairman and Managing Director of Corporation Bank, said.

He also said that the bank would like to partner with other interested players for floating such an infra fund.

"There are players such as IDBI, IIFCL, IDFC among others, who have already evinced interest for such a fund. We will try to collaborate with one of our peers for setting up such a fund," he added.

On September 24, the RBI allowed banks and non-banking financial companies (NBFC) to sponsor IDF, which can be set up as mutual funds and NBFCs.

This announcement came after Finance Minister Pranab Mukherjee's speech in 2011-12 Budget for setting up IDFs in order to accelerate and enhance the flow of long-term debt in infrastructure projects.

As per the central bank guidelines, IDFs that can be set up as NBFCs should have a minimum net-owned fund of Rs 300 crore and a capital adequacy ratio of 15%.

Similarly, in case of mutual fund route, it has to follow the limit on investments in financial services companies and on capital market exposure.

On the possible corpus and time line for floating such fund, Pradeep said that these things would be decided after the board approval.

Mangalore-headquartered public sector lender has lent around 10% of its total advances of Rs 79,000 crore by June, 2011 to infra sector and has less leverage to increase it due to sectoral cap imposed by the central bank.

"A debt fund will allow us to lend more to infra sector," Pradeep said, adding that the bank's total exposure to infra sector is spread across road, power and port sectors.

Corporation Bank reported a 5.29% increase in its net profit to Rs 351.45 crore for the first quarter ended June 30, 2011, against Rs 333.78 crore registered in the same period previous year.

Total income of the bank rose by 42.5% to Rs 3,266 crore during this period from Rs 2,293 crore in the corresponding period last fiscal.