RBI issues guidelines for banks sponsoring infrastructure debt funds

Scheduled commercial banks in the country would be allowed to act as sponsors of mutual funds or non-banking finance companies for floating infrastructure debt funds (IDF-MFs and IDF-NBFCs) with prior approval from the Reserve Bank of India (RBI).

Banks acting as sponsors to IDF–MFs should adhere to SEBI regulations in this regard, RBI said in a notification today.

A bank acting as sponsor of IDF–NBFC should contribute a minimum equity of 30 per cent and a maximum equity of 49 per cent of the IDF-NBFC.

The Banking Regulation Act does not provide for a bank holding shares in excess of 30 per cent of the paid-up share capital of a company, unless it is a subsidiary. However, the RBI said it would, based on merit, recommend to the government to grant exemption from the provisions of the Act for investment in excess of 30 per cent and up to 49 per cent in the equity of an IDF-NBFC.

Also, investment by a bank in the equity of a single IDF–MF and NBFC should not exceed 10 per cent of the bank's paid-up share capital and reserves.

Investment in the equity of a bank in subsidiary companies, financial services companies, financial institutions, stock and other exchanges put together should not exceed 20 per cent of bank's paid-up share capital and reserves and this limit will also cover bank's investments in IDFs as sponsors.