The Employees Provident Fund Organisation's (EPFO's) recent relaxation of investment norms for public sector bonds is likely to trigger a flow of funds into the infrastructure segment, through the Infrastructure Debt Funds (IDFs).
This is in tune with the recommendations of the working sub-group on infrastructure for the 12th five-year Plan.
In the new guidelines, any AAA-rated public sector unit will qualify for investments for a tenure up to 25 years. Any AA-rated PSU will qualify for investments for a tenure up to 15 years. An IDF is available as a mutual fund as well as a bond, issued by PSUs to fund infrastructure projects of companies other than themselves.
According to the sub-group headed by the State Bank of India's Santosh Nayar, the infra sector needs investment of Rs 50,000 lakh crore in the five-year plan period to achieve annual GDP growth of nine per cent. While half of this is seen as coming from budgetary support, there is a funding gap of Rs 14 lakh crore. The panel says this can be filled by easing of investment rules in bonds and by regulatory reforms to enable pension funds to invest in infrastructure.
The relaxed norms of EPFO are linked with this thinking, say sources. While EPFO has the funds, infrastructure projects need money for a long period. Hence, the amendments enabling investment for 25 years should be good news, say EPFO officials.
The sub-group specifically talks of IDFs and says Rs 50,000 crore to Rs 1 lakh crore might be available through this route over the 12th Plan.
EPFO would definitely be one of the investors, sources say. But IDFs, announced two years ago in the finance minister's budget speech, has been making slow progress. The first of these was launched by IIFCL last year. It is co-sponsored by Asian Development Bank, IDBI Bank, Life Insurance Corporation and HSBC.
Investments in an IDF are safe, as the funding takes place a year after the infrastructure project has been launched. The initial year's funding is taken care of through banks. Since all clearances are expected to be obtained by then, the IDF steps into a risk-free zone, says Amit Sethi of AMVI Financial.
While EPFO can invest in private sector bonds only of a 10-year tenure, it can invest in PSU bonds for as long as 25 years. Among the private companies which have registered their IDF with RBI are ICICI Bank, Citi Financial, Bank of Baroda and IDBI.
Many PSUs are co-sponsors. This means many of them could launch their own IDF in the future, says Sethi. Not only will the infrastructure sector benefit from the flow of funds from EPFO for as long as 25 years, the subscriber also stands to gain from long-term PSU investments, say EPFO officials. There has been a long-term trend of decline in EPFO returns since the 1990s. Long-term investments would mean guaranteed returns at a higher rate, officials say.