What changed
RBI expanded the scope of eligible non-resident investors for IDFs beyond FIIs and NRIs to include sovereign wealth funds, multilateral agencies, pension funds, insurance funds, endowment funds, and HNIs. Investments can now be made in both rupee and foreign currency denominated bonds issued by IDF-NBFCs, and rupee units of IDF-MFs, with a minimum 5-year maturity and 3-year lock-in period.
What it means for you
Banks acting as AD Category-I can now facilitate a broader range of foreign investors in IDFs, potentially increasing capital flow into infrastructure financing. The 5-year maturity and 3-year lock-in ensure long-term stability, but banks must ensure compliance with ECB guidelines for foreign currency bonds and SEBI/RBI conditions. This opens new avenues for banks to structure IDF products and earn fee income.
What you must do
- Update internal policies to recognize the expanded list of eligible non-resident investors for IDFs.
- Ensure all foreign currency bonds issued by IDF-NBFCs comply with ECB guidelines except reporting requirements.
- Verify that investments meet the 5-year original maturity and 3-year lock-in period, allowing inter-investor trading within lock-in.
- Ensure compliance with SEBI and RBI terms and conditions for eligible investors and instruments.
Who it affects
AD Category-I banks, Infrastructure Debt Funds (NBFCs and Mutual Funds), Eligible non-resident investors (sovereign wealth funds, FIIs, NRIs, HNIs, etc.), SEBI and RBI regulatory teams
What is the minimum lock-in period for non-resident investments in IDFs?
All non-resident investments in IDF securities have a lock-in period of three years, though investors can trade among themselves during this period.
Can NRIs invest in foreign currency denominated bonds of IDFs?
No, NRIs are only allowed to invest in rupee denominated bonds and units issued by IDFs, not foreign currency bonds.
Are foreign currency bonds issued by IDFs subject to ECB norms?
Yes, they must comply with all FEMA ECB guidelines except reporting requirements, including all-in-cost limits.