5 Nov 2019

Banks to lend to Infrastructure Investment Trusts (InvITs)

Source: PRS, Monthly Policy Review

The Reserve Bank of India (RBI) has permitted banks to lend to Infrastructure Investment Trusts (InvITs).  So far, banks were only permitted to invest in units of InvITs, but not lend to them

What are Infrastructure Investment Trusts (InvITs)?

  • InvITs are collective insurance schemes similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return.
  • The InvIT is designed as a tiered structure with Sponsor setting up the InvIT which in turn invests into the eligible infrastructure projects either directly or via special purpose vehicles (SPVs).
  • The InvITs are regulated by the SEBI (Infrastructure Investment Trusts) Regulations, 2014.

Conditions for lending

The lending will be subjected to certain conditions. These include: 

  • Banks should not lend to those InvITs where any underlying special purpose vehicle is facing financial difficulty
  • Banks should put in place a board-approved policy on exposures to InvITs which should cover sanctioning conditions, and monitoring mechanism, among other details, and 
  • Banks should undertake an assessment of all critical parameters including the sufficiency of cash flows to ensure timely debt servicing. 
  • Further, the audit committee of the board of the banks should review compliance to the above conditions on a half-yearly basis