RBI asks banks to establish a policy approved by the board to make investments in InvIT

Mumbai, October 14 () The Reserve Bank on Monday asked the banks to establish a policy approved by the board to make investments in infrastructure investment trusts (InvIT).

An InvIT is a collective investment scheme, which allows the direct investment of money from individual and institutional investors in infrastructure projects and the return on their investment.

Banks and insurance companies have not been investing in InvIT due to regulatory restrictions.

The banks will establish a policy approved by the board on exposures to InvIT that will cover, among other things, the evaluation mechanism, sanction conditions, internal limits, monitoring mechanism, etc., the RBI said in a statement.

The audit committee of the bank board will review compliance with the above conditions on a semiannual basis, he said.

Banks will only lend to those InvITs where none of the underlying SPVs, which have existing bank loans, face 'financial difficulties,' he said.

Without prejudice to the generality, banks will carry out an evaluation of all critical parameters, including the adequacy of cash flows at the InvIT level to ensure timely debt service. The general leverage of the InvITs and the underlying SPVs together will be within the leverage allowed according to the banks' approved political advice, he said.

Banks will also monitor the performance of the underlying SPVs on an ongoing basis, since the ability of the InvITs to meet their debt obligation will depend largely on the performance of these SPVs, he said. Since the InvITs are trusts, he said, banks must take into account the legal provisions regarding these entities, especially those related to the application of security. DP CS MKJ