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India Infrastructure Finance Company Ltd (IIFCL) may be first off the block in setting up an infrastructure debt fund (IDF), following the Finance Ministry framing guidelines for these funds proposed in the 2011-12 Union Budget.
“We are planning an IDF with an initial size of Rs 5,000 crore, which would be through the non-banking finance company (NBFC) route”, Mr S.K. Goel, Chairman and Managing Director of IIFCL, told Business Line.
The Finance Ministry had, on June 24, come out with guidelines, allowing IDFs to be established either as trusts or as companies.
A trust-based IDF would basically be a mutual fund that would issue units, whereas a company-based fund would be an NBFC that would issue bonds to domestic as well as foreign investors.
The proceeds accruing to an IDF are to be deployed for refinancing of infrastructure projects set up on the public-private partnership (PPP) mode.
The returns from the investments made by IDFs in debt securities of PPP projects are fully tax-exempt. For investors subscribing to bonds issued by an IDF, the main attraction is a lower withholding tax of five per cent, as against the normal 20 per cent tax-deducted-at-source on interest payments.
Rbi ambit
While trust-based IDFs are to be regulated by the Securities and Exchange Board of India, IDFs set up as NBFCs would be under the ambit of the Reserve Bank of India (RBI). Both these regulators would have to issue their own separate guidelines for IDFs to really take off.
Besides IIFCL, the State Bank of India (SBI) is also said to be considering setting up an IDF, which requires a minimum Tier-I equity of Rs 150 crore. The Finance Ministry's guidelines permit banks and financial institutions to only be sponsors of IDFs; they cannot directly invest in the bonds issued by these funds. The investors being targeted are primarily domestic and offshore institutional investors, especially insurance and pensions funds, which have long-term resources that can be deployed in infrastructure projects.
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