Mumbai: The government is likely to launch a `500-crore credit enhancement fund in July to facilitate infrastructure investments by insurance and pension funds, a senior finance ministry official said Monday.
The fund was first announced in the financial budget for fiscal year 2016-17.
“India is launching a dedicated fund may be next month to provide credit enhancement for infrastructure projects which will help in upgrading credit ratings of bonds issued by infrastructure companies and facilitate investment from investors like pension and insurance funds,” said Kumar Vinay Pratap, joint secretary (infrastructure, policy and finance), ministry of finance (MoF).
He was speaking at an event here on private sector participation in resource mobilisation organised by the MoF.
The initial corpus of the fund, to be sponsored by IIFCL (India Infrastructure Finance Company), will be `500 crore, and it will operate as a non-banking finance company, he said.
Pratap said there is a “mismatch” at present, where bonds floated by infrastructure finance firms are typically rated BBB, whereas regulatory agencies mandate a rating of at least ‘AA’ for investments by the long-term pension and insurance funds.
He attributed the delay in fructification of the budget announcement to the time taken in amending the NBFC-CE (credit enhancement) notification by the Reserve Bank of India (RBI) and also getting all stakeholders together.
IIFCL will hold a 22.5 per cent stake in the NBFC, while the Asian Infrastructure Investment Bank (AIIB) has offered to pick up a 10 per cent stake, Pratap said, adding that state-run SBI, Bank of Baroda and LIC will also have stakes in the firm.
The joint secretary said the World Bank had evinced interest to pump-in `5,000 crore for the fund initially, but the government declined it because it wanted to start small for proving the concept.
He said at present, the banking system does a bulk of infrastructure project financing and exposes itself to asset liability management (ALM) mismatches and hence, alternatives like raising of money through corporate bonds is necessary.
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