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RBI specifies Guidelines for NBFCs sponsoring Infrastructure Debt Funds

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Sucheta Mehra

The Reserve Bank of India vide notification No. DNBS.PD.CC.No.249/03.02.089/2011-12 dated November 21, 2011, has set out a detailed guidelines on the regulatory framework for Non Banking Financial Companies (“NBFC”) including Infrastructure Finance Companies (“IFC”) to sponsor Infrastructure Debt Funds (IDF”) which are to be set up in the form of two entities namely:

  1. Infrastructure Debt Fund – Mutual Funds (“IDF-MF”) and
  2. Infrastructure Debt Fund – Non-Banking Financial Company (“IDF-NBFC”).

The notification provides for various eligibility criteria for NBFCs including IFCs, sponsoring the above entities which are as follows:

Eligibility Criteria for NBFCs as Sponsors of IDF-MFs

In addition to the criteria prescribed by SEBI, as per Chapter VI B of the Mutual Funds Regulations, 1996, all NBFCs, including IFCs, registered with the Bank would be eligible to sponsor IDFs as Mutual Funds (“MF”) with prior approval of RBI subject to the following conditions:

  1. The NBFC should have a minimum Net Owned Funds (“NOF”) of Rs. 300 crore and it should continue to maintain the required level of NOF after accounting for the investment in the proposed IDF. Also the Capital to Risk Weighted Assets (“CRAR”) should be at least 15% and post investment it should be maintained at the prescribed minimum.
  2. Its net Non Performing Assets (“NPA”) should be less than 3% of net advances.
  3. It should have been in existence for at least 5 years and earned profit for the last three years.

Eligibility Criteria for IFCs as Sponsors of IDF-NBFCs

Only those NBFCs which have been formed as IFCs, can sponsor IDF-NBFC with prior approval of the Reserve Bank and subject to the following conditions.

  1. The Sponsor IFCs can make a contribution to a maximum of 49 percent to the equity of the IDF-NBFCs while it can have a minimum equity holding of 30 percent.
  2. The Sponsor IFC must maintain the prescribed minimum CRAR and NOF, post investment in the IDF-NBFC.

Further, the investment made by the sponsor NBFCs / IFCs and non-sponsor NBFCs / IFCs to the equity and debt of the IDFs would be governed by the extant credit concentration norms as given in para 18 of the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007.

Also, the IDF-NBFCs will have to enter into Tripartite Agreements to which, the Concessionaire, the Project Authority and IDF-NBFC shall be parties. Here, Concessionaire relates to a party which has entered into an agreement called ‘Concession Agreement’ with a Project Authority, for developing infrastructure, according to the Infrastructure Debt Fund-Non-Banking Financial Companies (Reserve Bank) Directions, 2011, as per RBI notification no. DNBS.233 / CGM(US)-2011 dated November 21, 2011.

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