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Credit Enhancement Fund of Rs 500 Crore is Coming!

Published on June 14, 2018
A credit enhancement fund of Rs 500 crore that was first announced in the Union Budget for fiscal year 2016-17 is finally all set to be unveiled by the government.
A Credit Enhancement Fund of Rs 500 Crore is coming !
  • The fund is expected to see the light of the day by next month, that is July 2018.
  • The government expects the fund to facilitate infrastructure investments by insurance and pension funds.
  • With the infrastructure projects getting a credit enhancement, the bonds issued by infrastructure companies will witness an upgrade in terms of their credit ratings and thereby attract investments from investors like pension and insurance funds.
  • Kumar Vinay Pratap, Joint Secretary (Infrastructure, Policy and Finance), Ministry of Finance said that the fund will be sponsored by IIFCL (India Infrastructure Finance Company) and it will operate as a non-banking finance company.
  • The Joint Secretary also pointed out that there is a mismatch between the bond ratings of bonds floated by infrastructure finance firms and the mandatory requirements by the regulatory agencies for investments by the long-term pension and insurance funds.
  • The bonds floated by infrastructure finance firms are "BBB" rated whereas regulatory agencies mandate a rating of at least "AA".
  • Following will be the stakeholders in the NBFC:
    • IIFCL (it will hold a 22.5% stake).
    • The Asian Infrastructure Investment Bank (AIIB) (wants to hold a 10% stake).
    • SBI (stake percentage not known at this point).
    • Bank of Baroda (stake percentage not known at this point).
    • LIC (stake percentage not known at this point).

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