Review of Regulatory Framework for IDF-NBFCs
In a bid to enable Infrastructure Debt Fund-Non-Banking Financial Companies (IDF-NBFCs) to play a more significant role in financing the infrastructure sector and to harmonize the regulations governing this sector, a comprehensive review of the guidelines applicable to IDF-NBFCs has been undertaken in consultation with the Government of India. The revised regulatory framework aims to bolster the role of IDF-NBFCs and streamline their operations.
The updated guidelines, effective immediately, are detailed in the Annex. An IDF can be established as either a trust or a company. A trust-based IDF is registered as an IDF-Mutual Fund (IDF-MF) and is regulated by the Securities and Exchange Board of India (SEBI), while a company-based IDF is registered as an IDF-NBFC and is regulated by the Reserve Bank of India (RBI).
Definition and Requirements
An IDF-NBFC is a non-deposit taking NBFC permitted to refinance infrastructure projects post commencement operations date (COD) that have completed at least one year of satisfactory commercial operations. Additionally, they can finance toll operate transfer (TOT) projects as direct lenders.
IDF-NBFCs must have a minimum net owned funds (NOF) of ₹300 crore and maintain a capital-to-risk weighted assets ratio (CRAR) of at least 15%, with a minimum Tier 1 capital of 10%.
Raising Funds
IDF-NBFCs can raise funds through rupee or dollar-denominated bonds with a minimum five-year maturity. To facilitate better asset-liability management (ALM), they can also issue shorter tenor bonds and commercial papers (CPs) from the domestic market, up to 10% of their total outstanding borrowings. Additionally, they can raise funds through the loan route under external commercial borrowings (ECBs), subject to a minimum tenor of five years, provided these loans are not sourced from foreign branches of Indian banks and adhere to the guidelines issued by the RBI’s Foreign Exchange Department.
Exposure Limits and Risk Weights
The exposure limits for IDF-NBFCs are set at 30% of their Tier 1 capital for a single borrower or party and 50% for a single group of borrowers or parties. For computing CRAR, IDF-NBFCs’ assets will be risk-weighted as per the norms applicable to NBFC-Investment and Credit Companies (NBFC-ICCs).
Sponsorship and Tripartite Agreement
Previously, an IDF-NBFC was required to be sponsored by a bank or an NBFC-Infrastructure Finance Company (NBFC-IFC). This requirement has now been withdrawn, and shareholders of IDF-NBFCs will undergo scrutiny similar to other NBFCs, including NBFC-IFCs. The earlier mandate for IDF-NBFCs to enter into a tripartite agreement with the concessionaire and the project authority for investments in Public-Private Partnership (PPP) infrastructure projects has been made optional.
Other Regulatory Norms
All other regulatory norms, including income recognition, asset classification, and provisioning norms applicable to NBFC-ICCs, will apply to IDF-NBFCs.
Sponsorship of IDF-MFs by NBFCs
All NBFCs can sponsor IDF-MFs with prior approval from the RBI, provided they meet specific criteria, including a minimum NOF of ₹300 crore, a CRAR of 15%, and net NPAs less than 3% of net advances. They must also have been in existence for at least five years, earning profits for the last three years, with no supervisory concerns.
Access the full RBI circular here
