RBI limiting success of Indian infrastructure debt funds

Author: Ashley Lee | Published: 10 Dec 2012

India's newly-launched infrastructure debt funds should facilitate investment in national infrastructure. But the Reserve Bank of India's approach to debt must change before the product can succeed.

Infrastructure debt funds (IDFs) were established to create a dedicated vehicle for low-cost, long-term financing for infrastructure projects so that banks do not take on long-term credit risk.

Although the Interim Report of High-Level Committee for Financing of Infrastructure projected INR 515 crores ($1 trillion) of investment in the next five years, counsel have questioned the practical use of IDFs because of investment restrictions and regulatory confusion.

Trilegal’s Saurabh Bhasin predicted that parallel regimes would develop, as the Securities and Exchange Board of India (Sebi) regulates IDFs as mutual funds and the Reserve Bank of India (RBI) regulates them as non-banking financial companies (NBFCs).

Counsel called for RBI and Sebi to collaborate closely to ensure that their respective rules do not...