India launches first infrastructure debt fund

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SME Times News Bureau | 06 Mar, 2012
Launching the First Infrastructure Debt Fund (IDF), Union Finance Minister Pranab Mukherjee Monday said that setting-up of infrastructure debt fund through public private partnership would meet the nation's long-term need of infrastructure sector funding.

Mukherjee said that he is confident that the establishment of Infrastructure Debt Fund through PPP model would be a guiding principle for the future.

Speaking after a Memorandum of Understanding (MOU) was signed by Chanda Kochar, Managing Director, ICICI Bank, Pramit Jhaveri, CEO, CITI Bank, M.D. Mallaya, CMD, Bank of Baroda and Sushobhan Sarkar, MD, LIC. in New Delhi on Monday, the Finance Minister said that funds to the tune of USD 1trillion would be required for Infrastructure Sector Funding in next five years, out of which 50 percent would come from private sector through PPP model.

The MoU was signed for setting-up India’s First Infrastructure Debt Fund (IDF) structured as a Non-Banking Finance Company (IDF-NBFC).

Earlier, Mukherjee, in his Budget Speech for 2011-12, had announced setting-up of Infrastructure Debt Funds (IDFs) in order to accelerate and enhance the flow of long term debt in infrastructure projects for funding the government’s ambitious programme of infrastructure development.

To attract off-shore funds into IDFs, the Finance Minister had also announced that withholding tax on interest payments on the borrowings by the IDFs would be reduced from 20% to 5%. Income of the IDFs has also been exempt from income tax.

The framework for establishment of IDFs was announced by the Ministry of Finance in June, 2011 wherein IDFs were allowed to be set up either structured as a non banking financial company (NBFC) or as a mutual fund.

The Reserve Bank of India issued the regulations for IDFs to be set up as a NBFC in November, 2011 and Securities Exchange Board of India issued the regulations governing an IDF structured as a mutual fund in August, 2011.

According to an official release, ICICI Bank (together with a wholly-owned subsidiary), Bank of Baroda, CITI Bank and LIC will hold 31%, 30%, 29% and 10% shareholding respectively in the IDF-NBFC.

The IDF would seek to raise debt capital from domestic as well as foreign resources and would invest in infrastructure projects under the Public-Private Partnership model that have completed one year of operations.

The IDF will expand and diversify the domestic and international sources of debt funding to meet the large financing needs of the infrastructure sector, thereby giving an impetus to the creation of the infrastructure necessary to drive India’s growth, it said.