Infrastructure debt funds (IDFs), the investment vehicles conceived by the RBI to provide an additional funding source for infrastructure projects as bank lending to the sector has slowed dramatically in the past few years, are yet to make a significant impact, credit rating agency ICRA believes.

According to the agency, the credit books of IDFs established in the form of non-banking finance companies (NBFCs) have grown to ₹11,200 crore for the two-year period ending March 31, 2017.

This, however, stands at just 1.2 per cent of the total bank credit to the infrastructure sector. So far, only three such IDFs have been launched in India — L&T IDF, India Infradebt and IDFC IDF.

The credit growth of the three IDFs established as trusts — which are mutual funds that issue units to investors and are regulated by SEBI — has been even slower, with assets under management at ₹2,900 crore in June 2017. IDFs through the trust route were set up by IIFCL, ILFS and Srei.

Rohit Inamdar, Group Head, Financial Sector Ratings, ICRA, believes the limited availability of operational projects with track record of satisfactory performance of at least one year, as required by IDF regulations, and the banks’ reluctance to shed those operational projects having lower credit risk have impacted the business volumes of IDFs.

“Overall, IDF-NBFCs have scaled up better than IDF-MFs, but are likely to remain marginal players in the infrastructure space over the medium term,” Inamdar adds. “With the sectoral and client concentration being much higher than that of the traditional NBFCs, their ability to manage these risks while profitably growing business would remain a key determinant of their credit profile over the medium term”.

According to ICRA, initially, much of IDF-NBFCs’ exposure was in road projects with the NHAI as the project authority due to regulatory restrictions of investing only in public-private partnership (PPP) projects that had completed at least one year of commercial operations and where the project authority has a tripartite agreement with the concessionaire.

With time, the regulatory landscape for IDF-NBFCs evolved and investments in PPP projects without project authority and non-PPP projects were allowed.

Analysts suggest that rising share of such investments can alter IDFs’ portfolio vulnerability over the medium term.