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.
- 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).
