The decks have been cleared for the launch of country's first infrastructure debt fund (IDF) under the company route. Private sector lender ICICI Bank and other financial biggies, including Bank of Baroda and Life Insurance Corporation, have decided to come together to set up an IDF as a non-banking finance company (NBFC).
A memorandum of understanding will be signed for this purpose in the presence of the Finance Minister, Mr Pranab Mukherjee, here on Monday, official sources said.
The Finance Ministry had on June 24 last year issued guidelines, allowing IDFs to be set up either as trusts or as companies. A trust-based IDF would basically be a mutual fund that would issue units. On the other hand, a company-based fund is an NBFC that would issue bonds to domestic as well as foreign investors.
RBI norms
As per the guidelines issued by RBI and the Finance Ministry, the IDF-NBFC can invest only in public private partnership and post-commercial operation date infrastructure projects, which have completed at least one year of satisfactory commercial operation and are a party to a tripartite agreement with the concessionaire and the project authority for ensuring a compulsory buyout with termination payment.
Refinance by NBFC-IDF would be up to 85 per cent of the total debt covered by the concession agreement. Senior lenders would retain the remaining 15 per cent, for which they would charge a premium from the infrastructure company.
The returns from the investments made by IDFs in debt securities of PPP projects are fully tax-exempt. For investors subscribing to bonds issued by an IDF, the main attraction will be the lower withholding tax of five per cent, against the normal 20 per cent tax deducted at source on interest payments. The returns to investors are not entirely tax-free as dividend distribution tax will be applicable to any dividend payout made by the IDF.
Net-owned fund
The RBI guidelines stipulate that IDF-NBFC is required to have a net-owned fund of Rs 300 crore or above. Also, sponsors of NBFC-IDFs will have to contribute a minimum equity of 30 per cent.
The maximum equity of sponsors in a NBFC-IDF is 49 per cent. The minimum capital adequacy to be maintained by the IDF-NBFC will have to be 15 per cent of risk-weighted assets.
The major part of debt requirements of infrastructure sector in India continues to be sourced through commercial banks.
Of the total investment in infrastructure during 2007 to 2010, 50 per cent is from budgetary sources, 36 per cent from debt funding and the remaining from private equity.
Commercial banks have contributed 20 per cent of the total debt funding and the remaining 16 per cent has together been pumped in by NBFCs, external commercial borrowings and insurance companies.
The total bank lending to infrastructure went up from 8.68 percent of total bank credit as at end March 2008 to 14.7 per cent by end March 2011.