The Indian Government has approved several measures to promote the operationalization of Infrastructure Debt Funds (IDFs) in the country so that banks can alleviate their balance sheets.

The Government has capped the annual guarantee fee payable to the Concession Authority at 0.05% p.a. of outstanding debt financed by the IDF NBFC (Non Banking Financial Companies) for the first three years of operation of the IDF NBFC.

The Government has also allowed that IDFs have access to the benefits of Public Financial Institutions (PFI) which will give them more legal stability among others. In addition, post-successful COD (commercial operation date) PPP projects shall now be eligible for investment by Insurance Companies, Provident Funds (PFs), EPFO, Mutual Funds (MFs), etc.

IDFs are expected to channelize long term funds from insurance and pension funds, sovereign wealth funds, etc. to supplement lending for infrastructure projects by commercial banks which are increasingly being constrained by their asset-liability mismatch and exposure limits, The cost and tariff of Infrastructure services are likely to go down as a result of low cost, long term debt provided by IDFs. The taking over of existing bank debts by IDFs will release an equivalent volume for fresh lending by banks to infrastructure projects. This will also help in overcoming the issue of asset-liability mismatch being faced by banks.

The total investment in the infrastructure sector during the Twelfth Five Year Plan, is estimated at Rs. 56.3 lakh crore (approx. US$1 trillion), which is nearly double of that made during the Eleventh Five Year Plan. Financing investments of this order with significant participation from the private sector will require adoption of innovative ways of financing.