RBI asks banks to put in place board-approved policy for making investment in InvITs

Mumbai: The Reserve Bank on Monday asked banks to put in place a board-approved policy for making the investment in infrastructure investment trusts (InvITs).

An InvIT is a collective investment scheme, which enables direct investment of money from individual and institutional investors in infrastructure projects and returns out of their investment. Banks and insurance companies have not been investing in InvITs because of regulatory restrictions. "Banks shall put in place a board approved the policy on exposures to InvITs which shall inter alia cover the appraisal mechanism, sanctioning conditions, internal limits, monitoring mechanism, etc," the RBI said in a statement.

The audit committee of the board of banks shall review the compliance to the above conditions on a half-yearly basis, it said. Banks will lend to only those InvITs where none of the underlying SPVs, which have existing bank loans, is facing 'financial difficulty', it said. "Without prejudice to generality, banks shall undertake an assessment of all critical parameters including the sufficiency of cash flows at InvIT level to ensure timely debt servicing.

The overall leverage of the InvITs and the underlying SPVs put together shall be within the permissible leverage as per the board approved the policy of the banks," it said. Banks shall also monitor the performance of the underlying SPVs on an ongoing basis as the ability of the InvITs to meet their debt obligation will largely depend on the performance of these SPVs, it said. As InvITs are trusted, it said, banks should keep in mind the legal provisions in respect of these entities especially those regarding enforcement of security.