Banks and insurance companies have not been investing in InvITs because of regulatory restrictions.
The Reserve Bank on Monday asked banks to put in place a board-approved policy for making investment in Infrastructure investment trusts (InvITs). An InvIT is a collective investment scheme, which enables direct investment of money from individual and institutional investors in infrastructure projects and return out of their investment.
Banks and insurance companies have not been investing in InvITs because of regulatory restrictions. “Banks shall put in place a board approved policy on exposures to InvITs which shall inter alia cover the appraisal mechanism, sanctioning conditions, internal limits, monitoring mechanism, etc,” the RBI said in a statement.
The audit committee of the board of banks shall review the compliance to the above conditions on a half yearly basis, it said. Banks will lend to only those InvITs where none of the underlying SPVs, which have existing bank loans, is facing ‘financial difficulty’, it said. “Without prejudice to generality, banks shall undertake assessment of all critical parameters including sufficiency of cash flows at InvIT level to ensure timely debt servicing.
The overall leverage of the InvITs and the underlying SPVs put together shall be within the permissible leverage as per the board approved policy of the banks,” it said. Banks shall also monitor performance of the underlying SPVs on an ongoing basis as ability of the InvITs to meet their debt obligation will largely depend on the performance of these SPVs, it said.
As InvITs are trusts, it said, banks should keep in mind the legal provisions in respect of these entities especially those regarding enforcement of security.