The finance ministry will create the proposed infrastructure debt funds out of money raised through tax-free infrastructure bonds and external commercial borrowings (ECBs).
The debt funds are expected to be structured in the form of Infrastructure Finance Companies (IFC) as defined by the Reserve Bank of India (RBI). A suitable regulatory framework for these funds is also being contemplated.
The government reckons that tax-free bonds and ECBs will ensure that the borrowing costs for debt funds remain at lower levels and enable them to lend at competitive rates to infrastructure projects.
According to RBI, an IFC is a non-deposit taking NBFC with at least 75% of its assets earmarked for loans to the infrastructure sector. Also, it must have minimum net owned funds of Rs 300 crore and a minimum credit rating ‘A’ from prominent rating agencies.
The Resrve Bank allows IFCs to raise funds through ECBs without obtaining its prior approval. IFCs can raise funds through ECBs up to 50% of their owned funds under the automatic route.
Officials from securities market regulator Sebi and RBI who met finance ministry officials here on Monday also discussed the issue of credit rating of the debt funds. The official said the regulators also discussed the need to balance the requirements of domestic borrowers as well as foreign investors. The ministry is also evaluating the option of allowing these funds to raise money in foreign currency.
With funding requirements posing a major challenge for the infrastructure sector, both Sebi and RBI are in consultation with the government for creating a separate regulatory framework for infrastructure debt funds.
However, it is yet to be decided if there will only one such fund or many. The guidelines are likely to be finalised by June. The move is aimed at making long-term funds available for the sector.
The government has estimated that the total investment in infrastructure is expected to shoot up to $1 trillion (Rs 45 lakh crore) in the 12 th Plan as against $514.04 billion in the 11 th Plan and $217.86 billion in the 10th Plan. In order to encourage floating of such funds, finance minister Pranab Mukherjee has announced exemption of such funds from any income tax under section 10 of the Income Tax Act.
In the Budget for 2011, Mukherjee had announced setting up of infrastructure debt funds through special purpose vehicles for attracting foreign investment in the infrastructure sector. ?To attract foreign funds for financing of infrastructure, I propose to create special vehicles in the form of notified infrastructure debt funds,? he had said in his Budget speech.