Four banking and financial services giants — ICICI Group, Life Insurance Corporation, Citicorp Finance India and Bank of Baroda — on Monday joined hands to launch India's first infrastructure debt fund (IDF) to be structured as a non-banking finance company (NBFC).
The Memorandum of Understanding for setting up this IDF was signed in the presence of the Finance Minister, Mr Pranab Mukherjee, and the Planning Commission Deputy Chairman, Mr Montek Singh Ahluwalia, in the Capital.
This company will have an initial equity share capital (tier-I) of Rs 300 crore. Taking into account the tier-II capital and the ability to borrow, it can set up a fund of about $2 billion, Ms Chanda Kochhar, Managing Director, ICICI Bank, said here after the MoU signing event.
As for the equity contribution, ICICI Group will take 31 per cent stake, Bank of Baroda 30 per cent, Citicorp Finance India 29 per cent and LIC 10 per cent.
While ICICI Bank will take a stake of 30 per cent, an ICICI Group entity will take the other 1 per cent. Citicorp Finance India is a wholly-owned entity of Citigroup.
Alternative pool
“The Indian banking sector by itself will simply not be able to finance India's infrastructure needs. Our IDF will have an extraordinary opportunity to act as a catalyst to channelise domestic savings and global liquidity to create an alternate pool of capital. We expect to attract capital from both local and international debt investors alike,” Mr Pramit Jhaveri, CEO, Citi India said.
The funds will be invested in public-private projects in ports, railways, roads, highways and other such infrastructure projects, which have already commenced commercial production. Implementation risk will hardly be there and that will be the investment profile of this fund, Ms Kochhar said.
The IDF managers would not only have expertise in infrastructure finance, but also the ability to access domestic and global funds.
It will attract participation from entities that have so far not participated in the infrastructure development of India — long-term insurance and pension funds domestically and globally and many other global funds, including sovereign wealth funds.
There is also scope to attract foreign institutional investors in the debt part of the fund, Ms Kochhar said.