RBI Lays Down New Guidelines for Infrastructure Debt Funds
Infrastructure Debt Fund-NBFCs (IDF-NBFCs) will now be required to have a net owned fund (NOF) of at least Rs 300 crore, according to revised Reserve Bank norms for such entities released on Aug 18. Furthermore, they must have a capital-to-risk-weighted-assets ratio (CRAR) of at least 15% (with a minimum Tier 1 capital of 10%).
According to the RBI, a review of the guidelines applicable to IDF-NBFCs has been conducted in order to allow them to play a larger role in infrastructure financing and to harmonize the regulations governing infrastructure financing by NBFCs. The review was conducted in collaboration with the Government of India.
An IDF-NBFC is a company that has been registered as an NBFC in order to facilitate the flow of long-term debt into infrastructure projects. It raises funds by issuing rupee or dollar-denominated bonds with a minimum maturity of five years. IDF-NBFCs can only be sponsored by Infrastructure Finance Companies (IFC).
"IDF-NBFC shall raise funds through the issuance of either rupee or dollar-denominated bonds with a minimum maturity of five years," according to the revised regulatory framework for IDF-NBFCs.
To facilitate better asset-liability management (ALM), IDF-NBFCs can raise funds from the domestic market through shorter-term bonds and commercial papers (CPs) worth up to 10% of their total outstanding borrowings.
An IDF-NBFC was required to be sponsored by a bank or an NBFC-Infrastructure Finance Company (NBFC-IFC) under previous guidelines.
The requirement for an IDF-NBFC to have a sponsor has now been removed, and shareholders of IDF-NBFCs will be subjected to the same scrutiny as other NBFCs, including NBFC-IFCs, according to the RBI.
Subject to certain conditions, all NBFCs would be eligible to sponsor IDF-MFs with prior RBI approval.