Operationalization of Infrastructure Debt Funds - Removal of certain impediments

The Cabinet Committee on Economic Affairs has approved the following steps to promote the operationalization of Infrastructure Debt Funds (IDFs):

(a) Capping of the annual Guarantee Fee payable to the Concession Authority at 0.05% p.a. of outstanding debt financed by the IDF NBFC (Non Banking Financial Companies) for the first three years of operation of the IDF NBFC; and

(b) Access to the benefits of Public Financial Institutions (PFI) status to IDFs like permitting IDF NBFCs to file Shelf Prospectus under Sec. 60 A of the Companies Act, 1956 and access to provisions of the SARFAESI Act, including to the adjudicatory process through Debt Recovery Tribunals as currently permitted to Banks and PFIs. In addition, post-successful COD PPP projects shall now be eligible for investment by Insurance Companies, Provident Funds (PFs), EPFO, Mutual Funds (MFs), etc.

IDFs are expected to channelize long term funds from insurance and pension funds, sovereign wealth funds, etc. to supplement lending for infrastructure projects by commercial banks which are increasingly being constrained by their asset-liability mismatch and exposure limits, The cost and tariff of Infrastructure services are likely to go down as a result of low cost, long term debt provided by IDFs. The taking over of existing bank debts by IDFs will release an equivalent volume for fresh lending by banks to infrastructure projects. This will also help in overcoming the issue of asset-liability mismatch being faced by banks.

It was in the pursuance of this objective that the framework for the Infrastructure Debt Funds was announced and on 04.10.2012, the Cabinet Committee on Infrastructure (CCI) approved the adoption of a Model Tripartite Agreement (MTA) for the Highways Sector along with the constitution of an empowered Inter-Ministerial Group to approve sector or project-specific modifications in the MTA.

The total investment in the infrastructure sector during the Twelfth Five Year Plan, is estimated at Rs. 56.3 lakh crore (approx. US$1 trillion), which is nearly double of that made during the Eleventh Five Year Plan. Financing investments of this order with significant participation from the private sector will require adoption of innovative ways of financing.

There are vast parts of the country which are isolated economically as well as geographically. The immense potential of these areas remains untapped. Lack of infrastructure not only results in reduced economic output, it also acts as a bottleneck to growth and an obstacle to poverty reduction. It also translates into additional costs in terms of time, effort and money to access essential services such as health care and education.