A report by Crisil earlier this year had stated that the InvIT
market had the potential to reach Rs 2 trillion by the end of March 2021. Set up by a sponsor, InvITs are designed as a tiered structure, which in turn invests in eligible infrastructure projects either directly or via special purpose vehicles. The returns from the project are distributed as dividends at fixed intervals — usually a year. On the one hand, they need financing from banks to replenish themselves, and on the other, they need to create units that will attract investors. Until recently, the RBI had concerns about banks’ exposure to InvITs, and worries about the double financing of loans and the risks of ever-greening of loans that have gone sticky.
To remove these concerns, Market regulator Securities and Exchange Board of India (SEBI) in July this year amended its Infrastructure Investment Trusts Regulations, 2014, and raised the leverage norms (debt to asset value) for InvITs to 70 per cent from 49 per cent. This is subject to the trusts retaining a triple A credit rating, along with a track record of six continuous dividend distributions to unit holders. However, this leverage cap is not applicable to privately-placed, unlisted InvITs. The other change is that foreign portfolio investors can now invest in InvITs. This has made life easier for the InvITs, since it raises their liquidity, which can be deployed in more infrastructure assets.
To allow banks to lend to InvITs, the RBI put out a notification last week, saying that this would be possible provided the boards of the banks framed a policy for such investments. “Banks shall undertake assessment of all critical parameters including sufficiency of cash flows at InvIT level to ensure timely debt servicing,” it said.