SEBI notifies guidelines on infra debt fund

As per the government norms an IDF may be set up either as a trust or company. While the trust based IDF (Mutual Fund) would be regulated by SEBI, an IDF set up as a company (NBFC) would be regulated by RBI

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) on Tuesday notified guidelines for launching infrastructure debt fund (IDF) which would invest 90% of its assets in debt securities of the sector companies, reports PTI.

“An infrastructure debt fund scheme shall be launched as close-ended scheme maturing after more than five years or interval scheme with lock-in of five years...,” SEBI said in a circular.

An IDF scheme, which can be set up by any existing mutual fund, would invest a minimum 90% of scheme assets in the debt securities and should have a minimum of five investors.

The minimum investment into IDF would be Rs1 crore and the minimum size of the unit would be 10 lakh, SEBI said.

The IDF, which was proposed by finance minister Pranab Mukherjee in the Union Budget for FY11-12, is aimed at accelerating and enhancing flow of long-term debt for funding the ambitious programme of infrastructure development in the country.

SEBI said the strategic investor would have to make a firm commitment of Rs25 crore. The units of infrastructure debt fund schemes shall be listed on the stock exchange.

“An infrastructure debt fund shall have minimum five investors and no single investor shall hold more than 50% of net assets of the scheme,” SEBI added.

The requirement of infrastructure in the 12th Plan has been pegged at $1 trillion.

As per the government norms an IDF may be set up either as a trust or company. While the trust based IDF (Mutual Fund) would be regulated by SEBI, an IDF set up as a company (NBFC) would be regulated by RBI.

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RBI to reintroduce inflation-indexed bonds

The basic feature of inflation-indexed bonds or capital-indexed bonds is that the coupon is specified in real terms. Such real coupon will be applied to the inflation-adjusted principal to calculate the periodic semi-annual coupon payments

Mumbai: Reserve Bank of India (RBI) governor Duvvuri Subbarao on Tuesday said the central bank is planning to introduce inflation-indexed bonds, under which an investor would get a return on the basis of the prevailing inflation at the time of maturity, reports PTI.

“One cause of concern is whether in a period of relative high inflation ... whether they (inflation-indexed bonds) will be successful. We will think through this... but certainly we will introduce that,” Mr Subbarao told a national finance symposium organised by the Indian Institute of Foreign Trade and the Bombay Chamber of Commerce here.

When bonds are indexed to inflation, the return on them will be linked to the prevailing rate of inflation at maturity of the instrument on both the coupons as well as on the principal repayments at maturity.

The existing bonds are capital-indexed and only protect the capital/principal against inflation, but an IIB (inflation-indexed bond) will be offering investors inflation-based returns. The index in this case will be based on the monthly wholesale price index.

Pointing out that the past experience with such an instrument was not received well, the governor said, “We have diversified the instruments for government borrowings now...

The zero coupon bonds, capital indexed bonds and now there is a proposal to introduce inflation indexed-bonds.

“We tried those inflation indexed bonds earlier, but it did not work out very well but now we want to reintroduce them.”

The first capital indexed bond (CIB), known as inflation-indexed bonds, was a 2002 paper, issued on 29 December 1997.

But no further issuance was made for want of response from market participants both in the secondary and primary markets.

The RBI formally floated the idea of inflation-indexed bonds when Rakesh Mohan was the deputy governor, though the concept was mooted in the late 1990s.

Later, an RBI technical committee had proposed introduction of fully-inflation indexed bonds for institutional investors with maturities of 10-12 years.

Under the existing yield norms governing bonds, there is only fixed rate of return and for an issue that was bought when inflation was down does not guarantee higher returns to investor when the inflation goes up.

The CIBs, according to an RBI discussion paper, would help meet the diverse investment and hedging needs of investors and to impart depth to the bond market in general.

The basic feature of IIBs or CIBs is that the coupon is specified in real terms. Such real coupon will be applied to the inflation-adjusted principal to calculate the periodic semi-annual coupon payments.

Unlike the existing capital indexed bonds, which protect only the capital/principal against inflation, the new scheme promises investors inflation-based returns.

Under this, if inflation remains high at the time of maturity over the rate when the bond was bought, then the investor will gain, and if it is lower than that rate prevailing at the time of maturity, then the investor will lose out.

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Commodity rates are high, pressure on inflation persists: Govt

Minister of state for finance Namo Narain Meena said in a reply to Rajya Sabha said the government was keeping a watch on global economic situation to assess the possible spill-over of economic downturn on the Indian economy

New Delhi: Global commodity prices continue to remain high despite weak recovery in advanced countries and this has resulted in continuation of inflationary pressure India, reports PTI.

“Despite the weak recovery in growth in the advanced economies, global commodity prices have not softened as much as one would have expected. As a result, supply side pressure on domestic inflation persists,” minister of state for finance Namo Narain Meena said in a written reply to Rajya Sabha.

He said the government was keeping a watch on global economic situation to assess the possible spill-over of economic downturn on the Indian economy.

The minister added that a moderate inflation is conducive to growth and investment activities.

His reply comes at a time when the government battling price rise. Headline inflation has been above 9% since December 2010 and stood at 9.22% in July this year.

Food inflation breached the double-digit mark, after a brief period of moderation, and stood at 10.05% for the week ended 20th August.

The Reserve Bank of India (RBI) has hiked interest rates 11 times since March 2010 as part of its monetary tightening policy to tame inflation.

“The RBI’s monetary policy stance is aimed at maintaining an interest rate environment that moderates inflation and anchors inflationary expectations,” Mr Meena said, adding that while cost of borrowing goes up with the increase in policy rates, lower levels of inflation would provide greater relief to the common man.

India Inc has complained that high interest rates have led to increase in costs of borrowings, thus hindering fresh investments which have led to a slowdown in industrial activity.

The country’s gross domestic product (GDP) growth during the April-June quarter was 7.7%, the lowest in six quarters.

Mr Meena said the government has taken action to provide succour to affected sectors on account of high interest rates.

“On an ongoing basis, government has also been providing interest subventions for key sectors of economy and sections of the society,” the minister said.

In reply to another question, Mr Meena said banks are not making any big profit due to frequent increases in interest rates on existing loans.

“Taking cues from the monetary tightening by RBI, banks have been increasing both their deposit and lending rates.

While the borrowers pay high interest rates when lending rates go up consequent upon hike of policy rates by RBI, the scheduled commercial banks also raise their deposit rates which have increased in the range of 250-500 basis points since March 2010 across all maturities.”

“Therefore, higher lending rates do not necessarily mean higher profit for banks,” Mr Meena said.

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