Citi and Life Insurance Corporation of India to set up India’s first Infrastructure Debt Fund

SANJAY AGARWAL-RANGPO-6THMARCH12
-ICICI Bank, Bank of Baroda, Citi and Life Insurance Corporation of India to set up India’s first Infrastructure Debt Fund.as per the information received from the banks management of the said banks The Finance Minister in his budget speech for fiscal 2012 had announced setting up of Infrastructure Debt Funds (IDFs) in order to accelerate and enhance the flow of long term debt for infrastructure projects. To attract off-shore funds into IDFs Finance Minister had also announced that withholding tax on interest payments on the borrowings by the IDFs would be reduced from 20% to 5%. Income of the IDFs has also been exempt from income tax.

The framework for establishment of IDFs was announced by the Ministry of Finance in June, 2011 wherein IDFs were allowed to be set up either structured as a non banking financial company (NBFC) or as a mutual fund. Reserve Bank of India issued the regulations for IDFs to be set up as a NBFC in November, 2011 and Securities Exchange Board of India issued the regulations governing an IDF structured as a mutual fund in August, 2011.

ICICI Bank, Bank of Baroda (BoB), Citicorp Finance India Limited (Citi) and Life Insurance Corporation of India (LIC) have entered into a Memorandum of Understanding (MoU) for setting up India’s first Infrastructure Debt Fund structured as a Non Banking Finance Company (IDF - NBFC). The MoU was signed today in the presence of the Honourable Finance Minister, Shri Pranab Mukherjee.

ICICI Bank (together with a wholly-owned subsidiary), BoB, Citi and LIC will hold 31%, 30%, 29% and 10% shareholding respectively in the IDF-NBFC. The IDF would seek to raise debt capital from domestic as well as foreign resources and would invest in infrastructure projects under the Public-Private Partnership model that have completed one year of operations. The IDF will expand and diversify the domestic and international sources of debt funding to meet the large financing needs of the infrastructure sector, thereby giving an impetus to the creation of the infrastructure necessary to drive India’s growth.