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Infrastructure Funding by NBFCs

Infrastructure Funding by NBFCs. Strictly Private & Confidential. Introduction. Adequate and efficient infrastructure is an integral part of economic growth Slowdown in Indian economy can be attributed to poor infrastructure, along with various other factors

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Infrastructure Funding by NBFCs

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  1. Infrastructure Funding by NBFCs Strictly Private & Confidential

  2. Introduction • Adequate and efficient infrastructure is an integral part of economic growth • Slowdown in Indian economy can be attributed to poor infrastructure, along with various other factors • The relationship between infrastructure development and economic growth is well established, both complement each other • The rapid growth of the economy has put a lot of strain on infrastructure areas like power, railways, roads, ports, airports, irrigation and urban/rural water supply.

  3. Rapid Urbanization • India is undergoing a transition from rural to semi-urban society, one third of the country’s population resides in urban area • Gujarat, Maharashtra, Tamil Nadu and Karnataka are significantly urbanized, thus attracting more population • Comparison between the census of 2001 and 2011: Towns grown from 5,161 to 7,935. Further, Urban Local Bodies has increased to 4,041 from 3,799 and cities with population more than 1 million has considerably increased from 35 to 53 • Public investment in urban sector ignored despite increasing population: In2009-10, GOI invested about Rs. 75,000 crore for the rural sector as against Rs. 8,000 crore under JnNURM for urban sector

  4. Investment in infrastructure during five year plans • Twelfth five year plan: GOI has aimed to increase infra-investment from 8 per cent of GDP to 10 per cent of GDP by the end of plan. Further, investment requirement for the sector is estimated at Rs. 41 trillion. Larger participation by private sector and expected to increase its contribution to 50 per cent of total investment.

  5. Funding in Infrastructure According to the Planning Commission, during the first three years of Eleventh Five Year Plan, funds from GOI budget financed around 45% of the total investment, while remaining 55 per cent was divided between debt financing (41 per cent) and equity financing (14 per cent). Further, under debt financing, commercial banks alone financed around 21 per cent, while NBFCs contributed 10 per cent and other sources such as, External Commercial Borrowings (ECBs), equity, FDI and insurance companies financed less than 10% of the total infrastructure investment each.

  6. NBFC in Infra Funding • In February 2011, then Finance Minister Shri. Pranab Mukherjee announced the Infrastructure Debt Funds (IDF) concept with tax exemptions • Accelerate and broaden the funding sources for country's Rs. 41 trillion infrastructure requirements during the 12th Five Year Plan • Under SEBI regulations Banks and NBFCs would be eligible to sponsor IDFs as Mutual Funds with prior approval of the RBI • As per RBI, NBFC sponsoring Infra Debt Fund (IDF) should have minimum net owned funds (NOF) of Rs 300 cr and capital adequacy ratio of 15 per cent

  7. NBFC in Infra Funding • IDF would invest only in PPP and post Commercial Operation Date (COD) infrastructure projects • In 2013, two IDFs were formed namely, India Infradebt (a joint venture between ICICI Bank, Bank of Baroda, Citicorp Finance and Life Insurance Corporation of India) and IL&FS Infra Debt Fund (a joint venture between IL&FS and eight public sector banks including Bank of India and Allahabad Bank)

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