CCEA clears hurdles to operationalisation of infrastructure debt funds

The cabinet committee on economic affairs (CCEA) has approved a proposal to allow infrastructure debt funds to recover bad debt and has accorded them the status of public financial institutions (PFI) in order to augment their resources for infrastructure financing under the NBFC route.

Accordingly, NBFCs functioning as IDFs will be permitted to file shelf prospectus under the provisions of the Companies Act and will have access to provisions of the SARFAESI Act, including to the adjudicatory process through debt recovery tribunals as currently permitted to Banks and PFIs.

IDFs are also not required to file prospectus more than once during the validity of prospectus.

In addition, post-successful completion, public-private partnership (PPP) projects will now be eligible for investment by insurance companies, provident funds (PFs), EPFO, mutual funds (MFs) etc.

It also caps the annual guarantee fee payable to the concession authority at 0.05 per cent of outstanding debt financed by the IDF NBFC for the first three years of operation.

IDFs are expected to channelise long-term funds from insurance and pension funds, sovereign wealth funds, etc, to supplement lending for infrastructure projects by commercial banks which are increasingly being constrained by their asset-liability mismatch and exposure limits.

The cost and tariff of Infrastructure services are likely to go down as a result of low cost, long term debt provided by IDFs.

The taking over of existing bank debts by IDFs will release an equivalent volume for fresh lending by banks to infrastructure projects.

This will also help in overcoming the issue of asset-liability mismatch being faced by banks.