Mumbai: The Reserve Bank of India (RBI) on Wednesday permitted non-banking financial companies (NBFCs) to invest in infrastructure investment trusts (InvITs), in a bid to promote infrastructure development through this investment route. RBI said that it will allow NBFCs to act as sponsors to InvIT issuances and permit them to consider their holdings of InvIT units as part of the sub-limit of 60% for equity investments in the NBFC’s group companies.
In effect, RBI—which regulates NBFCs—is ratifying a change in investor rules that the Securities and Exchange Board of India (Sebi) introduced this January. In its 19 January circular, Sebi allowed strategic investors such as NBFCs and international multilateral financial institutions to invest up to 25% of the total offer size of InvITs. As an additional precaution, RBI said that NBFCs’ exposure to InvITs shall be limited to their holdings as sponsors and shall not, at any point in time, exceed the minimum limit in terms of the amount and tenor prescribed in this regard by the Sebi (Infrastructure Investment Trusts) Regulations, 2014.
The central bank will issue necessary instructions within a week.
In May 2017, the RBI allowed banks to invest in real estate investment trusts (REITs) and InvITs in order to attract more institutional investors to such assets and expand the investment scope of banks. The recent change in policy with regard to NBFCs is also expected to have a similar effect – increase the investor base for the InvIT product. The change in rules for banks was also done by the RBI at the behest of SEBI.
SEBI has been struggling to develop an active investor base for InvITs since the investment instrument was introduced in 2014. Here, infrastructure developers can set up and list trusts which hold infrastructure projects with public investors to recover a part of their investment. However, only two InvITs - IRB InvIT Fund and Indiagrid Trust - have got listed on stock exchanges so far. Despite a series of regulatory relaxations, the product has failed to find takers.
In its most recent relaxation, SEBI said that strategic investors like NBFCs can invest 5-25% of the total offer size of the InvIT. The investment is locked in for 180 days from the date of listing in the public issue. The price at which the strategic investor agrees to buy units of the such trusts should not be less than the issue price determined in the public issue. If the price determined in the public issue is lower than the price at which the allocation is to be made to strategic investor, the excess amount will not be refunded to the investor.