Infrastructure Debt Funds

Infrastructure Debt Funds is a debt instrument being set up by the finance ministry in order to channelize long term funds into infrastructure projects which require long term stable capital investment. According to the structure laid out by the finance ministry, after consultations with stakeholders, infrastructure NBGCs, market regulators and banks, an IDF could either be set up as a trust or as a company. IDFs in India: The government of India has unveiled the structure of infrastructure debt funds (IDFs), allowing local infrastructure developer’s access to money from insurance and pension funds from India and overseas, even as bank lending to roads and power projects is constrained by limits set by the central bank. IDFs are expected to provide long-term, low-cost debt for infrastructure projects. At present, banks are the main source of funding for these projects. Asset-liability mismatches and loan exposure limits to industries set by the Reserve Bank of India (RBI) have made it difficult for banks to provide long-term funding. It is here underscored that the IDF was proposed by in Budget 2011-12. The ultimate aim of the IDFs is to accelerate and enhance the flow of debt for funding the ambitious programme of infrastructure development in the country. The requirement of infrastructure in the 12th Plan has been pegged at $1 trillion. The IDF would help garner resources from domestic and off-shore institutional investors, especially insurance and pension funds. Banks and financial institutions would be allowed to sponsor IDFs. In India the IDFs could be set up by NBFCs or banks, with a minimum capital of Rs 150 crore. Such a fund would be allowed to raise resources through rupee or dollar denominated bonds of minimum five year maturity. These bonds could be traded among the domestic and foreign investors. Company based IDFs would be allowed to fund projects in public-private partnership (PPP) which have completed one year of commercial operations. Potential investors in this category, include off-shore and domestic institutional investors, high net worth individuals and non-resident Indians. If the IDFs are set up as a trust, the fund could be sponsored by a regulated financial sector domestic entity. It would have to invest 90 per cent of its assets in the debt securities of infrastructure companies or SPVs across all infrastructure sectors. Minimum investment by trustbased IDF would be Rs 1 crore with Rs 10 lakh as minimum size of the unit. The credit risks associated with underlying projects will be borne by the investors and not by IDF, but in case of company-based IDF, the fund would bear the risk.