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Commercial banks can act as sponsors of infra debt funds

Commercial banks would be allowed to act as sponsors to infrastructure debt funds, both through the mutual fund and NBFC routes, with prior approval from the Reserve Bank of India, the Central bank said on Monday.

Commercial banks would be allowed to act as sponsors to infrastructure debt funds (IDF MFs), both through the mutual fund and NBFC routes, with prior approval from the Reserve Bank of India (RBI), the Central bank said on Monday. Banks may act as sponsors to infrastructure debt funds, subject to adherence to Sebi regulations in this regard. A bank acting as sponsor of IDF?NBFC shall contribute a minimum equity of 30% and a maximum equity of 49% of the IDF-NBFC.

Investment by a bank in the equity of a single IDF MF and NBFC should not exceed 10% of the bank?s paid-up share capital and reserves. The investment in the equity of a bank in subsidiary companies, financial services companies, financial institutions, stock and other exchanges, put together, should not exceed 20% of the bank?s paid-up share capital and reserves and this limit will also cover the bank?s investments in IDFs as sponsors. Banks? exposures to IDFs- (MFs and NBFCs) by way of contribution to paid-up capital as sponsors will form part of their capital market exposure and should be within the regulatory limits specified in this regard. Banks should have clear policies and limits laid down by their boards for their overall infrastructure exposure, which should include their exposures as sponsors to IDFs (MFs and NBFCs).

The IDFs (MFs and NBFCs) should make a disclosure in the prospectus or offer document at the time of inviting investments that the sponsoring bank’s liability is limited to the

extent of its contribution to the paid-up capital.

Since in terms of Section 19 (2) of the Banking Regulation Act, 1949, a bank cannot hold shares in excess of 30% of the paid-up share capital of a company, unless it is a subsidiary, the Reserve Bank would, based on merits, recommend to the government to grant exemption from the provisions of Section 19(2) of the Act, for investment in excess of 30% and up to 49% in the equity of the IDF-NBFC.

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First published on: 22-11-2011 at 03:51 IST
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