Microfinance Focus, September 23, 2011: The Reserve Bank of India has today allowed Banks and Non Banking Financial Companies (NBFCs) to sponsor Infrastructure Debt Funds (IDFs), to be set up as Mutual Funds (MFs) and NBFCs. The Central Bank has issued parameters for setting ups of IDFs.

Banks acting as sponsors to IDF-MFs would be subject to existing prudential limits including limits on investments in financial services companies and limits on capital market exposure.

For an NBFC to sponsor IDF Mutual Fund, it should have a minimum Net Owned Funds (NOF) of Rs. 300 crore and CRAR of 15%. Its net NPAs should be less than 3% of net advances and it should have been in existence for at least 5 years and should be earning profits for the last three years and its performance should be satisfactory.

The CRAR of the NBFC post investment in the IDF-MF should not be less than that prescribed and the NBFC should continue to maintain the required level of NOF after accounting for investment in the proposed IDF, the RBI guidelines say.

The Securities and Exchange Board of India (SEBI) has amended the (Mutual Funds) Regulations to provide regulatory framework for IDF-MFs.

The Union Finance Minister in his budget speech for 2011-12 had announced setting up of IDFs in order to accelerate and enhance the flow of long term debt in infrastructure projects for funding the Government’s programme of infrastructure development.