Banks, NBFCs allowed to sponsor infra debt funds

The Reserve Bank of India (RBI) has allowed banks and non-banking financial companies (NBFC) to sponsor infrastructure debt funds (IDF), which can be set up as mutual funds and NBFCs.

The move follows Finance Minister Pranab Mukherjee’s announcement in the 2011-12 budget of setting up of IDFs in order to accelerate and enhance the flow of long-term debt in infrastructure projects.

Infrastructure debt funds which can be set up as NBFCs should have a minimum net-owned fund of Rs 300 crore and a capital adequacy ratio of 15 per cent, the RBI said in a statement.

IDF SET UP AS MF
Banks acting as sponsors of infrastructure debt funds as MFs have been subjected to existing limits, including limits on investments in financial services companies and on capital market exposure. A bank’s capital market exposure has been capped at 40 per cent of its net worth, both through direct and indirect routes.

In case of NBFCs, it should have a minimum net owned funds (NOF) of Rs 300 crore to act as a sponsor, and should be able to maintain the same level of NOF even after investing in the fund. Also, the NBFC should maintain a capital adequacy ratio of 15 per cent after investment. The entity should also have good track record for five year and been profitable for the last three years.

IDF SET UP AS NBFC
Banks and NBFCs keen on sponsoring an IDF-NBFC must contribute at least 30 per cent and a maximum of 49 per cent of the total capital of the fund, besides meeting the other requirements prescribed for floating an IDF-MF. “The guidelines will be big boost for the infrastructure sector which needs long term funds. NBFCs taking part in it would be able to diversify their borrowing portfolio. We have other fund like gold fund. Hence we would be keen to launch an infrastructure debt fund,” said G S Sundararajan, managing director of Shriram Capital.

RBI further said an infrastructure debt fund set up as an NBFC should have a minimum net worth of Rs 300 crore and at the least should have a credit rating of ‘A’ or its equivalent by CARE, Fitch, Icra and Crisil. The NBFC’s Tier-II capital should not exceed Tier-I capital, while the minimum capital adequacy ratio should be 15 per cent.

“For the purpose of computing capital adequacy of the IDF, bonds covering PPP and post commercial operation date projects in existence over a year of commercial operation shall be assigned a risk weight of 50 per cent,” said RBI.

The fund can have an exposure of up to 50 per cent towards a borrower or a group of borrowers. The limit can be increased by up to 60 per cent if the board of the IDF-NBFC agrees. Limited additional extension beyond 60 per cent can be granted only after RBI approval.