IDBI Bank to create another infra debt fund with Rs 1,000 cr

IDBI Bank is setting up its second infrastructure debt fund (IDF) with authorised capital of Rs 1,000 crore through the non-banking financial company (NBFC) route.

The plan, with the bank as the primary sponsor, includes Punjab National Bank, Union bank Of India, Corporation Bank, Canara Bank, Syndicate Bank, Indian Overseas Bank, Dena Bank and Life Insurance Corporation of India as strategic partners.

A senior finance ministry official told Business Standard the Reserve Bank of India (RBI) was expected to give the necessary approvals for the IDF soon. He added the company had already received the certificate of commencement of business from the Registrar of Companies, Maharashtra.

Of the Rs 1,000 crore of authorised capital, IDBI Bank has committed Rs 300 crore and is looking at business of about Rs 15,000 crore by the end of 2014-15 through the IDF.

SECOND IDF IN THE MAKING

• IDBI Bank main sponsor of the IDF as NBFC
• LIC, PNB, Union Bank, Corporation Bank, Canara Bank, Syndicate Bank, Indian
• Overseas bank and Dena Bank as strategic partners
• Rs 1,000 crore proposed as authorised capital
• Company incorporated by RoC Maharashtra
• RBI nod expected soon

The memorandum of understanding for setting up the first IDF through the NBFC route was signed in March in the presence of finance minister Pranab Mukherjee. It was signed by ICICI Bank chairman and managing director Chanda Kochar, Citi Bank chief executive Pramit Jhaveri, Bank of Baroda chairman and managing director M D Mallya, LIC managing director Sushobhan Sarkar.

ICICI Bank, together with a wholly-owned subsidiary, Bank of Baroda, Citi and LIC would hold 31 per cent, 30 per cent, 29 per cent and 10 per cent respectively, in the IDF.

Meanwhile, to ensure a quick kick-off for these IDFs, economic affairs secretary R Gopalan held a series of meetings for finalising the draft tripartite agreement, a necessity for NBFC IDFs, according to regulations, said the finance ministry official.

He added the final meeting in this regard was expected to be held on April 17 and discussions had already taken place with banks, credit rating agencies and the ministries and departments concerned, including those for road transport and highways, shipping and civil aviation.

The tripartite agreement would be signed by the IDF, and the authority concerned, such as the National Highways Authority of India, the Airports Authority of India and the infrastructure company handling the project taken up for funding. “In the case of NBFC IDFs, once the tripartite agreement is finalised, the fund can be kicked off,” the official said, adding these agreements were not necessary for IDFs created through the mutual fund mode under the Securities and Exchange Board of India (Sebi) guidelines.

The finance minister had, in the Budget speech for 2011-12, announced the setting up of IDFs to accelerate and enhance the flow of long-term debt in infrastructure projects for funding the government’s ambitious infrastructure development programme.

To attract off-shore funds into IDFs, the finance minister had also announced withholding tax on interest payments on borrowings by the IDFs would be reduced from 20 per cent to five per cent. Income of the IDFs has also been exempt from income tax.

The framework for establishing IDFs was announced by the ministry of finance in June. According to this, IDFs were allowed to be set up as either an NBFC or as a mutual fund.