Current Affairs

Credit Enhancement Fund of Rs 500 Crore is Coming!

A credit enhancement fund of Rs 500 crore that was first announced in the Union Budget for fiscal year 2016-17 is finally all set to be unveiled by the government.
A Credit Enhancement Fund of Rs 500 Crore is coming !
  • The fund is expected to see the light of the day by next month, that is July 2018.
  • The government expects the fund to facilitate infrastructure investments by insurance and pension funds.
  • With the infrastructure projects getting a credit enhancement, the bonds issued by infrastructure companies will witness an upgrade in terms of their credit ratings and thereby attract investments from investors like pension and insurance funds.
  • Kumar Vinay Pratap, Joint Secretary (Infrastructure, Policy and Finance), Ministry of Finance said that the fund will be sponsored by IIFCL (India Infrastructure Finance Company) and it will operate as a non-banking finance company.
  • The Joint Secretary also pointed out that there is a mismatch between the bond ratings of bonds floated by infrastructure finance firms and the mandatory requirements by the regulatory agencies for investments by the long-term pension and insurance funds.
  • The bonds floated by infrastructure finance firms are "BBB" rated whereas regulatory agencies mandate a rating of at least "AA".
  • Following will be the stakeholders in the NBFC:
    • IIFCL (it will hold a 22.5% stake).
    • The Asian Infrastructure Investment Bank (AIIB) (wants to hold a 10% stake).
    • SBI (stake percentage not known at this point).
    • Bank of Baroda (stake percentage not known at this point).
    • LIC (stake percentage not known at this point).
Credit Enhancement Fund of Rs 500 Crore is Coming! Credit Enhancement Fund of Rs 500 Crore is Coming! Reviewed by insiya yadav on June 14, 2018 Rating: 5

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