RBI’s New Directives for IDF-NBFCs Unveiled

The Reserve Bank, in its updated directives released on 18th August, stated that Infrastructure Debt Fund-Non-Banking Financial Companies (IDF-NBFCs) will now need to hold a net owned fund (NOF) of at least Rs 300 crore. In addition, they must maintain a capital-to-risk assets proportion (CRAR) of 15%, with a minimum of 10% as Tier 1 capital.

This revision, made in partnership with the Government of India, is aimed at amplifying IDF-NBFCs’ role in funneling resources into the infrastructure domain. The move is also designed to bring consistency to the regulatory landscape that oversees infrastructure-centric funding by NBFCs.

For context, IDF-NBFCs are specialized entities registered under the NBFC umbrella, designed to infuse long-term capital into infrastructure endeavors. They predominantly amass this capital by floating bonds, either in rupees or dollars, which mature in at least five years. The fresh regulatory framework emphasizes that only Infrastructure Finance Companies (IFC) are qualified to endorse IDF-NBFCs. This framework further specifies that IDF-NBFCs will primarily generate their funds by issuing such bonds with a five-year maturity minimum.

In a stride towards improved asset-liability coordination (ALM), the new provisions also allow IDF-NBFCs to procure capital via short-term bonds and commercial papers (CPs) from domestic sources, capping it at 10% of their total borrowed funds.

Contrary to the previous norms, which mandated a sponsoring bank or an NBFC-Infrastructure Finance Company (NBFC-IFC) for an IDF-NBFC, this stipulation has now been relaxed. Instead, scrutiny will be directed towards IDF-NBFC investors, akin to the checks conducted for other NBFC categories, including NBFC-IFCs. The RBI also highlighted that, with its prior nod and upon meeting set prerequisites, all NBFCs can now act as patrons for IDF-MFs.