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Regulatory Framework for IDF-NBFCs

Reserve Bank of India (RBI) has revised the regulatory framework for Infrastructure Debt Fund - Non Banking Financial Companies (IDF-NBFCs).

What is Infrastructure Debt Fund - Non Banking Financial Company (IDF-NBFC)?

An Infrastructure Debt Fund - Non Banking Financial Company (IDF-NBFC) means a non-deposit taking Non Banking Financial Company (NBFC) which is permitted to – 

  • Refinance post commencement operations date (COD) infrastructure projects that have completed at least 1 year of satisfactory commercial operations. 
  • Finance toll operate transfer (TOT) projects as the direct lender.

Commencement of Operations Date (COD) means the date when the Service Provider begins the operations of the project pursuant to the issuance of Completion Certificate by the Authority.

In what forms can Infrastructure Debt Fund (IDF) be set up?

An Infrastructure Debt Fund (IDF) is set up either as a trust or as a company. 

  • A trust based IDF is registered as an IDF-Mutual Fund (IDF-MF) and is regulated by Securities and Exchange Board of India (SEBI).
  • A company based IDF is registered as an IDF-NBFC and is regulated by Reserve Bank of India (RBI).

What are the regulatory norms for IDF-NBFC?

Net owned funds (NOF) At least ₹300 crore
Capital-to-risk weighted assets ratio (CRAR) At least 15% (with minimum Tier 1 capital of 10%)
Exposure limits 30% of their Tier 1 capital for single borrower / party
50% of their Tier 1 capital for single group of borrowers / parties
Risk weights For computing CRAR of the IDF-NBFCs, their assets shall be risk-weighted as per risk-weights applicable to NBFC-Investment and Credit Companies (NBFC-ICCs).
Other regulatory norms All other regulatory norms including income recognition, asset classification and provisioning norms as applicable to NBFC-ICCs shall be applicable to IDF-NBFCs.

How can IDF-NBFC raise funds?

IDF-NBFC can raise funds through bond route and loan route.

Bond route –

  • IDF-NBFC shall raise funds through issue of either rupee / dollar denominated bonds of minimum 5-year maturity. 
  • IDF-NBFCs can raise funds through shorter tenor bonds and commercial papers (CPs) from the domestic market up to 10% of their total outstanding borrowings.

Loan route –

  • IDF-NBFCs can raise funds under external commercial borrowings (ECBs). 
  • ECB borrowings shall be subject to minimum tenor of 5 years.
  • ECB loans should not be sourced from foreign branches of Indian banks.

What are the guidelines on sponsor and tripartite agreement?

Previous Guidelines Revised Guidelines
IDF-NBFC was required to be sponsored by a bank or an NBFC-Infrastructure Finance Company (NBFC-IFC). The requirement of a sponsor for an IDF-NBFC has now been withdrawn and shareholders of IDF-NBFCs shall be subjected to scrutiny as applicable to other NBFCs, including NBFC-IFCs.
IDF-NBFCs were required to enter into a tripartite agreement with the concessionaire and the project authority for investments in the Public Private Partnership (PPP) infrastructure projects having a project authority. The requirement of the tripartite agreement has now been made optional.

“Concessionaire” means a party which has entered into an agreement called ‘Concession Agreement’ with a Project Authority, for developing infrastructure.

What are the guidelines for sponsoring IDF-MF?

All NBFCs shall be eligible to sponsor IDF-MFs with prior approval of RBI subject to the following conditions, in addition to those prescribed by SEBI –

  1. NBFC shall have a minimum NOF of ₹300 crore and CRAR of 15%.
  2. Its net NPAs shall be less than 3% of the net advances.
  3. It shall have been in existence for at least 5 years.
  4. It shall be earning profits for the last 3 years and its performance shall be satisfactory.
  5. CRAR of the NBFC post investment in the IDF-MF shall not be less than the regulatory minimum prescribed for it.
  6. NBFC shall continue to maintain the required level of NOF after accounting for investment in the proposed IDF-MF.
  7. There shall be no supervisory concerns with respect to the NBFC.


References

Reserve Bank of India. (2023, August 18). 'Review of Regulatory Framework for IDF-NBFCs'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12528&Mode=0


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