Government clears norms for infrastructure debt funds
24 Jun 2011
The government has unveiled broad contours of the infrastructure debt fund (IDF), which aims to enhance the flow of long-term funds to the country's infrastructure sector.
IDF, which was proposed by finance minister Pranab Mukherjee in his Budget 2011-12, may be set up either as a trust or a company. A trust-based IDF would normally be a mutual fund (MF) that would issue units while an IDF with a corporate or NBFC structure would issue bonds.
The IDF would have to be registered in India and regulated by one of the financial sector regulators.
A trust-based IDF, because of its mutual fund structure, would be governed by the Securities and Exchange Board of India (SEBI) while an IDF with a corporate or NBFC structure would be regulated by the Reserve Bank of India (RBI).
While banks and other financial institutions (FIs) would be allowed to invest as sponsors or promoters of an IDF, investments in the IDF would come primarily from insurance and pension funds, which hold long-term resources.
IDF may issue bonds to tap funds from insurance and provident funds and offer credit enhancement facility to infrastructure projects under public private partnership (PPP). IDFs may refinance PPP projects after their construction is completed and they have successfully operated for at least one year as such projects would involve a lower level of risk and consequently a higher credit rating, the finance ministry release said.
