To meet its infrastructure investment target for the current fiscal Life Insurance Corporation of India (LIC) along with SREI infrastructure finance is set to launch country’s first Infrastructure Debt Fund (IDF). This IDF will be set up through mutual fund route as SREI infrastructure finance has already received the in-principal approval for mutual fund from SEBI and LIC is waiting for SEBI’s approval for debt fund which will be a mutual fund.
Government in the budget of this year had announced IDF scheme to raise fund for infrastructure projects. In June 2011 Securities and Exchange Board of India (SEBI) has also come out with guidelines for these funds to be set up through mutual fund route. And recently Reserve Bank of India (RBI) also laid down regulations for infrastructure debt fund as NBFCs.
IDF can be set up either as trust or company. IDF set up through trust or mutual fund will be regulated by SEBI while IDF set up as company or NBFC will be regulated by RBI.
IDF floated through mutual fund route will have the facility of credit enhancement inherent in Public Private Partnership (PPP) projects. Such IDFs will refinance PPP projects after their completion and which had been successfully operated for one year this will make them less risky and it will get higher credit rating making it viable for insurance companies.
As per Insurance Regulatory and Development Authority’s (IRDA) norms it is mandatory for insurers to invest at least 15% of their income in infrastructure which can go up to 50% this is especially for traditional portfolios and LIC has largest traditional portfolio as its 60% income comes from traditional products. For the current fiscal LIC has been able to invest only 12 % due to lack of high rated papers. As per IRDA’s regulations insurers are allowed to invest only in AAA and AA rated debt papers in the infrastructure sector.