The Reserve Bank of India (RBI) has recently introduced updated guidelines for Infrastructure Debt Fund-Non-Banking Financial Companies (IDF-NBFCs). These revisions aim to enhance the role of IDF-NBFCs in financing the infrastructure sector and to align the regulations governing infrastructure sector financing by Non-Banking Financial Companies (NBFCs). The review of these guidelines has been carried out in collaboration with the Government of India.
Enhanced Capital Requirements
Net Owned Fund (NOF) Requirement: Under the new guidelines, IDF-NBFCs are mandated to maintain a minimum Net Owned Fund (NOF) of Rs 300 crore. This measure ensures that these entities possess adequate financial strength to engage significantly in infrastructure financing.
Capital Adequacy (CRAR): The revised norms stipulate a Capital-to-Risk Weighted Assets Ratio (CRAR) of at least 15%, with a minimum Tier 1 capital of 10%. This capital adequacy requirement safeguards the financial stability of IDF-NBFCs as they channel funds into infrastructure projects.
Fundraising Mechanisms and Asset-Liability Management
Bond Issuance for Long-Term Financing: IDF-NBFCs are authorized to raise funds by issuing bonds denominated in either rupees or dollars with a minimum maturity of five years. This approach ensures a steady flow of long-term debt into infrastructure projects.
Flexibility in Short-Term Borrowings: To facilitate effective asset-liability management (ALM), IDF-NBFCs are allowed to raise funds through shorter tenor bonds and commercial papers (CPs) from the domestic market. This privilege is extended up to a limit of 10% of their total outstanding borrowings.
Change in Sponsorship Requirements
Sponsorship Reevaluation: Previously, an IDF-NBFC was required to have a sponsor, typically a bank or an NBFC-Infrastructure Finance Company (NBFC-IFC). However, the updated guidelines withdraw the mandatory sponsorship requirement.
Shareholder Scrutiny: Instead of sponsor-based scrutiny, shareholders of IDF-NBFCs will now be subjected to the same scrutiny process as applicable to other NBFCs, including NBFC-IFCs. This change ensures uniform regulatory oversight across the NBFC sector.
Expanded Eligibility for Sponsorship
- Eligibility for NBFCs to Sponsor IDF-MFs: The revised guidelines expand the eligibility of sponsors for Infrastructure Debt Fund-Mutual Funds (IDF-MFs). All NBFCs can now sponsor IDF-MFs, subject to prior approval from RBI and compliance with specific conditions.