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RBI has permitted Banks to lend to InvITs , while keeping certain conditions in mind
As per RBI’s notification, banks now will be allowed to lend to InvITs. An Infrastructure Investment Trust (InvITs) is a Collective Investment Scheme similar to a mutual fund. They are designed to pool money from individuals and institutional investors and invest them in assets linked to infrastructure and gain profit out of that. Banks will be allowed to lend to InvITs provided none of the underlying special purpose vehicles (SPVs), which have bank loans, are going through financial instability.
A Special Purpose Vehicle(SPV) is a separate legal entity created by an organization. SPV has its own assets and liabilities as well as its own legal status. In case when the parent company gets bankrupt, SPV comes into rescue and carries forward the operations of the parent company.
The credit profile of InvITs is stronger as compared to infrastructure projects because of the benefits gained from asset diversification, cash pooling, and regulatory restrictions. InvITs raise a major amount of its funds from the unitholder.
Although, debt also forms an important part of the InvITs fundraising for optimizing return on investment. Without the availability of Bank Loans, debt was being availed at SPV level which resulted in operational complexity and higher credit cost.
Banks and other stakeholders have been seeking clarity on the provision of credit facilities to InvITs. This matter has been looked into by RBI and has decided to allow banks to lend to InvITs.
As per RBI Banks need to put in place a board-approved policy on exposures to InvITs which shall cover the appraisal mechanism, sanctioning conditions, internal limits, monitoring mechanism, etc.
RBI suggests that Banks should assess all critical parameters, including the sufficiency of cash flows at the InvIT level without any prejudice to generality. The overall leverage of InvITs and underlying SPVs when combined together should fall within permissible leverage as per the Board approved the policy of the Banks. Banks shall also keep a check on the performance of SPVs as the ability of InvITs to clear their debts largely depends upon the performance of these SPVs.NOT83E4341768B94C4A238C806858209C15D7
InvITs are very important for the infrastructure sector and helps to channelize a long term investment in the sector. Over the years, RBI and SEBI have taken numerous steps to strengthen the regulatory framework while keeping in mind the genuine problems faced by InvITs. Now after the availability of bank finance, InvITs have gained more prominence. This move by RBI of allowing banks to lend to InvITs gains more significance as the National Highways Authority of India (NHAI) is looking to issue InvITs as part of its asset monetization plan.
Also, Read: RBI Ruled Out Special Liquidity Facility for NBFCs.