Introduction: The Insurance Regulatory and Development Authority of India (IRDAI) has issued a significant circular, referenced as IRDAI/F&I/INV/CIR/003/01/2024 on 5th January 2024. This circular focuses on facilitating and streamlining investments by insurers in Infrastructure Debt Funds-NBFCs (IDF-NBFCs).
Detailed Analysis:
1. Background and Regulatory Framework: The circular highlights Note 2 of Regulation 9 of IRDAI(Investment) Regulations 2016, emphasizing that investments in Infrastructure Debt Fund (IDF), backed by the Central Government and approved by the Authority, shall be considered for “investments in infrastructure” on a case-to-case basis.
2. RBI’s Role and Recent Changes: In a recent review of the regulatory framework for IDF-NBFCs, the Reserve Bank of India (RBI) has played a pivotal role. It has enabled IDF-NBFCs to take on a more substantial role in financing the infrastructure sector.
3. Streamlining the Investment Process: To further encourage investments in the infrastructure sector and enhance the ease of doing business, the circular announces the elimination of the requirement for case-to-case approval for investments in an IDF. Instead, insurers are now permitted to invest in IDF-NBFCs, with such investments being reckoned as infrastructure investments.
4. Conditions for Investments:
- IDF-NBFC must be registered with RBI.
- Debt securities should have a residual tenure of not less than 5 years.
- Minimum Credit Rating of AA or its equivalent by a SEBI-registered Credit Rating Agency is required for approved investments.
- Exposure norms, as per Note 3 of Regulation 9 of IRDAI(Investment) Regulations 2016, shall be applicable.
Conclusion: In conclusion, the IRDA circular, under the approval of the Competent Authority, marks a significant shift in the approach towards insurer investments in the infrastructure sector. By removing the need for case-to-case approval and setting clear conditions for investments in IDF-NBFCs, the circular aims to promote increased participation in financing crucial infrastructure projects. Insurers are now empowered to contribute more effectively to the development of the infrastructure sector, aligning with broader economic growth objectives. This move is anticipated to have a positive impact on both the insurance and infrastructure sectors, fostering a more conducive environment for investment and development. As the insurance landscape adapts to these regulatory changes, stakeholders are encouraged to explore new opportunities in the infrastructure space with a more streamlined and efficient investment process.
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Insurance Regulatory And Development Authority of India
CIRCULAR
To All Insurers.
REF: IRDAI/F&I/INV/CIR/003/01/2024
5th January,2024
Sub: Investments in Infrastructure Debt Funds-NBFC.
1. Reference is drawn to Note 2 of Regulation 9 of IRDAI(Investment) Regulations 2016 which stipulates that “Investment in Infrastructure Debt Fund(IDF), backed by Central Government as approved by the Authority, on a case to case basis shall be reckoned for “investments in infrastructure. Accordingly, the Authority had allowed insurers’ investments in certain IDFs on case to case basis.
2. In the recent review of regulatory framework for IDF-NBFCs, RBI enabled IDFNBFCs to play a greater role in financing of the infrastructure sector.
3. To encourage further investments by insurers in the infrastructure sector and to enhance ease of doing business, the requirement of case to case approval for an investment in an IDF is done away with. Insurers are allowed to make investments in IDF-NBFCs which will be reckoned as infrastructure investments, subject to the following conditions:
a) IDF-NBFC is registered with RBI.
b)Debt securities shall have residual tenure of not less than 5 years.
c) Minimum Credit Rating of AA or its equivalent by a Credit Rating Agency registered with SEBI to be eligible for approved investments.
d) Exposure norms as per Note 3 of Regulation 9 of IRDAI (investment) Regulations,2016 shall be applicable.
This circular is issued with the approval of Competent Authority.
(Ammu Venkataramana)
General Manager
