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The Reserve Bank of India has asked banks to put in place a board-approved policy on exposure to Infrastructure Investment Trusts (InvITs) which, among others, should cover the appraisal mechanism, sanctioning conditions, internal limits, and monitoring mechanism.
Without prejudice to generality, the RBI said banks should undertake assessment of all critical parameters, including sufficiency of cash flows at the InvIT level, to ensure timely debt servicing.
As per the RBI’s circular, the overall leverage of the InvITs and the underlying SPVs put together should be within the permissible leverage as per the board-approved policy of the banks.
Banks should also monitor performance of the underlying SPVs (special purpose vehicles) on an ongoing basis as the ability of InvITs to meet their debt obligation will largely depend on the performance of these SPVs.
As InvITs are trusts, banks should keep in mind the legal provisions in respect of these entities, especially those regarding enforcement of security. Banks can lend to only those InvITs where none of the underlying SPVs, which have existing bank loans, is facing ‘financial difficulty’.
The RBI said the audit committee of the board of banks should review the compliance to the conditions relating to banks’ investment in units of InvITs on a half-yearly basis.
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