India must look at channelling insurance and pension funds into the newly-formed infrastructure debt funds (IDFs).
This is necessary as funds provided by the insurance and pension sectors are long-term, Finance Minister P. Chidambaram said after launching the maiden IDF scheme of IIFCL mutual fund at North Block on Tuesday.
The current regulatory framework governing insurance and pension sectors are seen as restrictive when it comes to investments in new vehicles, such as IDFs.
While IDFs now look to banks to support such initiatives, it was pointed out that banks do not have the flexibility to provide long-term resources. This is because banks’ resources by themselves are not very long-term in nature.
Targeting $1 b
India Infrastructure Finance Company Ltd (IIFCL) has rolled out an IDF through the mutual fund route.
S. K. Goel, Chairman and Managing Director, IIFCL, said the IDF was targeting a corpus of $1 billion with an equal amount coming from domestic and overseas resources. It has already committed Rs 1,500 crore to this initiative, he said.
IIFCL has set up IIFCL Asset Management Company Ltd to manage the mutual fund.
On Tuesday, the asset management company entered into memoranda of understanding (MoUs) with three public sector banks — Canara Bank, Corporation Bank and Oriental Bank of Commerce — and two financial institutions — IIFCL and HUDCO.
Canara Bank and HUDCO will contribute Rs 100 crore and Rs 50 crore, respectively, as strategic investors of the maiden IDF scheme of IIFCL Mutual Fund.
As investors, Corporation Bank, Oriental Bank of Commerce and IIFCL will contribute Rs 10 crore, Rs 10 crore and Rs 130 crore, respectively, for operationalising the first scheme.
Power, water projects
Chidambaram later handed over in-principle approval letters issued by IIFCL Asset Management Company Ltd to one power project in Jharkhand and one rural water project in Andhra Pradesh.
The maiden IDF scheme will mainly undertake investment in debt securities or securitised debt instrument of infrastructure companies, infrastructure capital companies or infrastructure projects, and special purpose vehicles.
The basic investment objective will be capital appreciation. The instruments will also be traded on the stock exchange, aimed at the developing the bond market in the country.