Govt launches $2 bn infra debt fund

The Centre launched a $2 billion IDF to catalyse long-term lending to core sectors

The Centre on Monday launched a $2 billion infrastructure debt fund (IDF) to catalyse long-term lending to core sectors.

The fund,which will be set up jointly by private sector lender ICICI Bank,Bank of Baroda,Citibank and Life Insurance Corporation of India (LIC),has been mandated to invest in infrastructure projects,under the public-private-partnership (PPP) model that have completed at least one year of operations.

A memorandum of understanding (MoU) to this effect was signed by the stakeholders to set up the fund (IDF),which is to be structured as a non-banking finance company (NBFC). ICICI Bank (together with a wholly-owned subsidiary) will hold 31 per cent,while Bank of Baroda,Citibank and LIC are to take 30 per cent,29 per cent and 10 per cent respectively in the fund.

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The company will start with an equity share capital of Rs 300 crore shared by the four partners. Taking into account Tier-II capital and the ability to borrow,it can raise about $2 billion. The fund would seek to raise debt capital from domestic and foreign resources in the form of long-term pension,insurance funds and sovereign wealth funds.

Till now,it has mainly been Indian banks that were providing debt for infrastructure financing. With this fund we will have an additional source of funding, said Chanda Kochhar,MD & CEO of ICICI Bank. Loans of the banks which initially financed the infrastructure projects can be taken up by this fund thus reducing their exposure, she added.

Finance minister,Pranab Mukherjee said that funds to the tune of $1 trillion would be required for infrastructure sector funding in the next five years. Out of which,50 per cent is to come from private sector via PPP.

The Finance Minister,in the last budget,had announced the setting-up of infrastructure debt funds (IDFs) in order to accelerate and enhance the flow of long-term debt in infrastructure projects. To attract offshore funds into IDFs,the finance minister had announced the reduction of withholding tax on interest payments on borrowings by the IDFs from 20 per cent to 5 per cent. Income of the IDFs has also been exempt from income tax.

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The framework for establishment of IDFs was announced by the finance ministry in June,2011 wherein IDFs were allowed to be set up either as an NBFC or as a mutual fund. RBI issued the regulations for IDFs to be set up as a NBFC in November,2011 while Sebi issued regulations governing an IDF structured as a mutual fund in August,2011.