IL&FS Infra Asset Management, a joint venture between IL&FS Financial Services and India's largest insurer, Life Insurance Corporation of India, has raised 750 crore (US$140 million) as the first part of a $5-billion infrastructure debt fund (IDF), which was set up since the Indian government announced its plan to build such funds to encourage banks to attract offshore funds.

The fund will be used for purchasing loans that banks and other financial institutions have given to companies to develop infrastructure projects.

Five banks - Bank of India, Canara BankBSE -0.18 %, Indian Bank, Allahabad Bank and Oriental Bank of Commerce - and the two joint-venture partners contributed to the initial fund. These funds will have maturities between 5 and 10 years.

According to sources, IL&FS Infra Asset Management plans to raise another Rs 1,250 crore (US$232 million) from government-owned insurance companies by March 2014. It has also entered into an agreement with Hong Kong-based Hamon Group of Investments to raise funds from Hong Kong and China. The firm has agreed to invest $25 million and has given IL&FS a commitment to raise $200 million for the fund.

Early this year, IL&FS Financial Services had entered into an arrangement with eight state-run banks - Allahabad Bank, Bank of India, Canara Bank, Central Bank of IndiaBSE -0.59 %, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce and UCO BankBSE -1.34 % - to acquire a part of their infrastructure loans.

IL&FS had initially planned to build a $2 billion IDF fund in 2012 but poor investor appetite led it to cut the initial size. The company has again envisioned a bigger fund and it plans to raise a total of $5 billion by the end of 2014.