Initially, interest in infra debt funds to be limited

Though the Insurance Regulatory and Development Authority (Irda) has allowed infrastructure debt funds (IDFs) to be used as an avenue for investment, insurers will have only limited exposure to this segment initially, as this is a new instrument and the sector is illiquid.

IDFs are investment vehicles that may be sponsored by commercial banks and non-banking financial companies (NBFCs) in India. Domestic/offshore institutional investors, insurance and pension funds can invest in these through units and bonds issued by these funds. Essentially, these will act as vehicles for refinancing existing debt of infrastructure companies, creating more room for banks to lend to new infrastructure projects.

S Prabhu, vice-president (fixed income), IDBI Federal Life Insurance, said though IDF had been introduced as an area of investment, the industry would adopt a cautious approach to it. “Based on our investment experience, the investment strategy will evolve over a period of time,” he said.

In its investment regulations, Irda had said investments in IDF backed by the Centre, as approved by the authority, would be considered for investments in infrastructure, on a case-to-case basis.

Two weeks ago, Irda had allowed L&T Infra Debt Ltd to issue a Rs 500-crore debt instrument to be included as investment in infrastructure. L&T Infra Debt had applied to the regulator, seeking approval for the issue of Rs 500-crore secured, redeemable and non-convertible debentures to be considered investment in infrastructure.

The IDF segment is seeing action, albeit at a slow pace. Prasun Gajri, chief investment officer, HDFC Life Insurance, said, “Not many have come up with issuances and the processes could take some time to start, since it is a new area. He added the company had already begun talks with IDFs.

Currently, there are several IDFs, including India Infradebt Ltd (a venture of ICICI Bank, Bank of Baroda, Citibank and Life Insurance Corporation of India) and IL&FS Infrastructure Debt Fund (a joint venture between IL&FS Financial Services and Life Insurance Corporation of India). Some banks are in the process of setting up their second IDF.

An IDF can be launched through the mutual fund (trust) route or through the NBFC (company) route.

Nirakar Pradhan, chief investment officer, Future Generali India Life Insurance, said though risks in the IDF segment were higher, so were the returns for investors. “This is a new model and companies are in the process of launching funds. Though this segment is long-term and illiquidity is built into the product, insurers have been allowed to invest in these,” he said.

This is because insurers can put in money on a long-term basis,” he said.