The Centre along with financial sector regulators is set to pave the way for banks, pension fund and insurance firms to invest in infrastructure debt funds (IDFs). Changes will be made in the laws and rules for these investors to subscribe to IDFs, designed to play a crucial role in bridging the deficit in infrastructure financing.
According to sources, the finance ministry is discussing with the RBI, Sebi and Irda the changes needed to enable banks, pension funds and insurance firms invest in IDFs. The IDF mutual funds will be listed on Indian bourses.
“Since units of IDFs are to be listed on stock exchanges, investment by banks in IDF-MF may be treated at par with listed securities of banks? non-SLR portfolio for the purpose of compliance with the prudential limits, even though the underlying portfolio of IDF MFs may be composed of both unlisted and listed securities of infrastructure companies,” an official said.
The IDBI and ICICI have already announced plans for IDFs, and many more players such as Srei Infrastructure are awaiting clarity in rules before floating such funds.
It is estimated that the country needs investments close to $1 trillion in the 12th Plan Period (2012-17) in infrastructure sectors. With the cash-strapped government struggling to narrow its fiscal deficit, half of the investment has to come from private sector.
Though government has announced the broad contours of setting up IDFs ? either through mutual fund or non-banking finance company ? sources said the current rules do not clearly say whether investment in the proposed funds should be akin to investing in infrastructure.
In a recent meeting with the economic affairs secretary Arvind Mayaram, industry bodies such as the FICCI had pointed out that investment norms for banks, pension funds, non-government provident funds and insurance companies have to be tweaked to treat IDF MF units on par with listed securities.
Some enabling amendments would be required in the existing RBI regulations as laid down in the June 2011 circular, allowing banks to invest in IDF MFs, sources said.
Industry bodies also wanted investment by banks in IDFs to be considered as part of the priority sector lending for banks. ?After all, IDF MFs will be investing in long term debt instruments of various infrastructure companies and hence the underlying portfolio is more akin to long term lending and not equity investments,? said an official. However, the RBI has to take a call on these proposals, he added. In case of exempted or non-government provident and gratuity and super-annuation funds, the IDF MF units can be incorporated as part of the debt securities, the official said.
The present rules allow provident funds to invest up to 55% of the corpus in government securities (both centre and states) and up to 40% in debt securities mainly issued by PSUs.
