RBI mandates a minimum net owned fund of Rs 300 crore for IDF-NBFC

The Reserve Bank of India(RBI) has revised its regulatory norms for the Infrastructure Debt Fund - Non banking Financial Company (IDF-NBFC) and now  they need to have a net owned fund (NOF) of at least Rs 300 crore. The revised regulatory framework for the IDF-NBFC was released by the RBI on 18 August 2023.

RBI has also made it mandatory for the IDF-NBFC to have a capital-to-risk weighted assets ratio (CRAR) of minimum 15 per cent (with minimum Tier 1 capital of 10 per cent).

According to the RBI these steps have been taken In order to enable IDF-NBFCs to play a greater role in the financing of the infrastructure sector.

Types of Infrastructure Debt Funds (IDF)

Infrastructure Debt Funds are a type of investment vehicle which can be set up by either a Commercial bank or NBFC. It could be either set up as a trust or as a company.

Trust:

The bank or NBFCs can set up IDF as a trust. If it is set up as a trust then it will be a mutual fund and will be regulated by the Securities Exchange Board of India (SEBI). 

NBFC:

If IDF is set up as a  company then it will be a NBFC. It will be regulated by the RBI and will be called as IDF-NBFC. Only banks and Infrastructure Finance Companies NBFC (IFC-NBFC) can sponsor IDF-NBFCs.

How do they raise resources?

IDF-NBFCs can  raise resources through the issuance of either Rupee or Dollar denominated bonds of minimum 5-year maturity. 

The IDF registered as a Mutual Fund will raise resources through the issue of units of MutualFunds to the investors.

What do they do? 

The concept of Infrastructure Debt Fund was introduced in India to provide an avenue for the banks to fund infrastructure projects. They provide an opportunity to the long term Indian/foreign institutional investors, like insurance and pension funds, to invest in the debt instruments of infrastructure companies. 

These long-term investors can invest either by buying the units of the IDF-MF (Mutual Fund) or the bonds issued by the IDF-NBFC. The IDF does not invest in a company, rather they invest in an infrastructure project.

The IDFs refinance the existing debt of the infrastructure companies.  The IDF-NBFCs buy only those loans given by the banks to those infrastructure projects which are created through the Public Private Partnership (PPP) route and have successfully completed one year of commercial production. 

Important Full Forms for Exam:

• NBFC: Non-banking Financial Company
• IDF: Infrastructure Debt Fund
• NOF: Net Owned Fund