Features of IDF or, Infrastructure Debt Fund

Features of IDF or, Infrastructure Debt Fund

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IDF or, Infrastructure Debt Fund can be referred to as investment vehicles that direct capital towards the infrastructure market. They are sponsored by Indian commercial banks and NBFCs, and domestic and foreign institutional investors, particularly pension and insurance funds, may invest in them through the bonds and units that the IDFs issue. IDFs would essentially serve as vehicles for refinancing current infrastructure businesses' debt, creating additional headroom for banks to lend to new infrastructure projects, according to the RBI.

IDF or, Infrastructure Debt Fund can be established as a company or as a trust. A trust-based IDF would typically be a Mutual Fund (MF), which is subject to SEBI regulation, whereas a company-based IDF would typically be an NBFC, which is subject to Reserve Bank regulation. As a result, IDFs come in two varieties: IDF-MFs and IDF-NBFCs. Banks and NBFCs may sponsor IDF-MFs. In contrast, banks and infrastructure finance firms may sponsor IDF-NBFCs. "Sponsorship" refers to an equity stake between 30 and 49% of the IDF held by the NBFC. A mutual fund that is governed by SEBI will be constituted as a trust-based IDF. IDF that is company-based will be established as an NBFC under RBI regulation.

An IDF-NBFC is a business that is governed by the RBI. When infrastructure projects developed through the Public Private Partnership (PPP) method have successfully completed one year of commercial production, IDF-NBFCs would take over the loans provided to those projects. A Tripartite Agreement between the IDF, Concessionaire, and the Project Authority would cover such takeovers of bank loans in order to guarantee a compulsory buyout with termination payment in the event that the Concessionaire defaulted on repayment.

Qualifying criteria for NBFCs as IDF-MF sponsors - sponsoring IDF-MFs must adhere to the following requirements:

• The NBFC must have at least Rs. 300 crore in Net Owned Funds (NOF) and a Capital to Risk Weighted Assets (CRAR) ratio of 15%.

• Less than 3% of net advances should be made up of net NPAs

• That ought to have been around for at least five years

• Throughout the previous three years, it should have been profitable, and its performance should have been satisfactory

• Following its investment in the IDF-MF, the NBFC's CRAR should not be less than the regulatory minimum set forth for it

• After taking into consideration investments in the proposed IDF, the NBFC should continue to maintain the necessary level of NOF (Net Owned Fund).

• There shouldn't be any oversight issues with the NBFC

• IDFs may also be sponsored by the existing Infrastructure Finance Company NBFCs (NBFC-IFC). They must fulfil the requirements in order to sponsor an IDF-NBFC

In this case, sponsor IFCs would be permitted to contribute up to 49 percent of the equity of the IDF-NBFCs, with a minimum equity ownership of 30 percent, and they should adhere to the minimum CRAR with no supervisory issues.