(IGP) Special Current Affairs Material for IAS (Pre) 2013 – PIB “Topic : Infrastructure Debt Fund”

(IGP) Special Current Affairs Material for IAS (Pre) 2013

Chapter: Gist of Press Information
Bureau Articles

Topic: Infrastructure Debt Fund

The Government has taken several initiatives to promote
private sector participation in the infrastructure sector as a result of which
the share of GDP going into infrastructure investment has increased from 5% in
2007 to 7% during 2009-10 and has increased to more than 8% in 2011-12. For the
XII Five Year Plan (2012-2017), the target of infrastructure investment has
again been doubled to US $ 1 trillion 50% of which is envisaged from the private

Q. Infrastructure Debt Fund (IDF)?

The Finance Minister in his Budget speech for 2011-12 had
announced setting up of Infrastructure Debt Funds (IDFs) to accelerate and
enhance the flow of long term debt in infrastructure projects. To attract
off-shore funds into IDFs, it was decided to reduce withholding tax on interest
payments on the borrowings by the IDFs from 20% to 5%. Wide-scale consultations
with stakeholders were undertaken.

Ministry of Finance issued the guidelines for the IDFs that inter alia
allowed IDFs to be set up as NBFCs or as mutual funds in June, 2011.

Regulations governing IDFs structured as mutual funds was
issued by SEBI in August, 2011 and regulations governing IDFs structured as
NBFCs was issued by RBI in November, 2011. The IDFs through innovative means of
credit enhancement is expected to provide long-term low-cost debt for
infrastructure projects by tapping into source of long tenure savings like
Insurance and Pension Funds which have hitherto played a comparatively limited
role in financing infrastructure in India.

Further, the IDFs set up as NBFC shall invest only in PPP
projects which have successfully completed one year of commercial operation and
are a party to a Tripartite Agreement with the concessionaire and the Government
authority sanctioning the project.

Banks and NBFCs would be eligible to sponsor IDFs subject to existing
prudential limits.

The first IDF structured as a NBFC was launched on March 5,
2012, with ICICI Bank, Bank of Baroda (BoB), Citicorp Finance India Limited (Citi)
and Life Insurance Corporation of India (LIC) entering into a Memorandum of
Understanding (MoU). The initial size of this IDF is expected to be Rs. 8,000
crore. IDBI along with a consortium of public sector banks has also launched an
IDF structured as a NBFC with an initial equity of Rs. 1000 crore which enables
it to raise funds upto Rs. 26,000 crore. IDFC has launched an IDF structured as
a mutual fund. Three more funds are awaiting regulatory approval.

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