Infra funds bonds likely to face challenge due shallow Indian market

Infra funds bonds likely to face challenge
With the Insurance Regulatory and Development Authority (IRDA) setting the guidelines for the infrastructure debt funds, the market participants expect a quick launch of the funds in the market, in the current fiscal.

However, Infrastructure debt funds, that accelerates and increases the flow of long-term funding to infrastructure projects in India at lower interest rates, is likely to face a tough situation following the shallow condition of the Indian bond market.

As per the laid norms, the infrastructure funds could be issued by the non banking finance companies as well, however, raising funds via bond sales has been assigned a maturity of five years. However, a sale of bonds with more than five years of maturity period is allowed in case the sales takes place in abroad. Currently, the only investors in long-term debts are insurance companies and pension funds.

Both these entities would have to await regulatory approvals to start investing in infrastructure debt funds. Currently, infrastructure finance companies like Rural Electrification Corporation, Power Finance Corporation and Indian Railways Finance Corporation are issuing these bonds in order to fund infrastructure projects in India. The guidelines, further makes it mandatory for the insurance company to spend 15% of their investments towards infrastructure.

Further, Foreign institutional investors (FIIs) are permitted to invest up to $25 billion in corporate bonds issued by infrastructure companies, with residual maturity of five years. Additionally, they could also trade among themselves during the lock-in period of three years.

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