Growth of infra debt funds needs more than easier rules

economictimes.indiatimes.com:

RBI) liberalisation of borrowing for Infrastructure Debt Funds is unlikely to infuse much life into the industry unless the central bank allows the funds to borrow cash for the short term and not expressly tie borrowings with the asset profiles financed by the debt.

The industry neither wants the RBI to enforce curbs on borrowing maturity profiles, nor regulate asset-liability management.

Last month, the RBI relaxed IDF norms by allowing them access to funds through the issue of rupee or dollar-denominated bonds of a minimum five-year maturity. While IDF-NBFCs can now raise funds through the loan route under external commercial borrowings (ECBs) with a requirement for a minimum tenor of five years, these loans cannot be sourced from foreign branches of Indian banks, fund managers are not enthused.

The industry wants RBI to not impose controls on IDF maturity or regulate asset and liability management (ALM) for them.

Currently, IDFs are limited to raising only 10% of their borrowing as short-term funds. This is in contrast to housing finance companies, which do long-term financing and resort to borrowing one-year commercial papers to finance 20-year loans.

IDFs borrow a minimum five-year money and lend to projects, that have longer maturity periods.

But, there are instances when promoters prepay. Since banks have prepayment options anytime, IDFs have to give prepayment options, which leads to borrowing profile mismatch.