Five funds have been set up over the last two years and these funds have taken an exposure to just a dozen projects. In contrast, banks incremental exposure to the infrastructure sector has risen by R2.16 lakh crore in two years, to R8.7 lakh crore as at the end of August.
IDFs under the mutual fund route have more liberty while making investments as the Securities and Exchange Board of India has allowed them to invest even in greenfield projects. However, even these IDFs are cautious to put in too much money. We have taken some exposure to projects in power and roads. Since we are specialised in infrastructure as a company, our IDF is able to take on riskier projects, said Ramesh Bawa, managing director and chief executive officer at IL&FS. LF&FS is perhaps the only IDF that has been relatively successful in raising R1,500 crore and deploying nearly R800 crore into projects by buying bonds issued by infra firms.
IDFs were introduced with the objective of freeing up bank capital stuck in long-term infrastructure projects and were seen to emerge as a stable long-term funding source eventually. There is a big gap between what IDFs have mobilised and what they have disbursed, said R Venkatraman, director at India Ratings that monitors and rates IDFs. In some cases, IDFs have not been able to mobilise funds, he added.
IDFs are allowed under two structures, as non-banking financial company and as mutual funds. Pawan Agrawal, senior director at CRISIL Ratings, believes that NBFC-IDFs will find it tough to scale up going ahead as the competition to raise funds through the bond market increases given that banks have now been allowed to issue infrastructure bonds themselves.
The Reserve Bank of India has allowed NBFC-IDFs to invest only in projects under public-private partnerships and with a one-year operational track record. Also, these IDFs can fund projects only through a tripartite agreement with a nodal agency (NHAI in case of road projects) which would protect their investment to the hilt. An official with India Infradebt, the IDF set up jointly by ICICI Bank, Bank of Baroda and Life Insurance Corporation of India, said that although the norms make investment challenging, they offer protection to the NBFC-IDFs.