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CEF will provide credit enhancement for infrastructure projects which will help in upgrading credit ratings of bonds issued by infrastructure companies and facilitate investment from investors like pension and insurance funds.
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The initial corpus of the fund will be Rs 500 crore and will be sponsored by IIFCL (India Infrastructure Finance Company).
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It will operate as a non-banking finance company (NBFC).
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IIFCL will hold 22.5% stake in the NBFC, while Asian Infrastructure Investment Bank (AIIB) has been offered by the Government to pick up 10% stake.
Why this fund was needed?
At present, only $110 billion is being invested in infrastructure in India, against requirement of $200 billion, leading many analysts to classify India as infrastructure deficit country. Most of the present infrastructure project financing is done by banking system. But all these lenders are saddled with problem of non-performing assets (NPAs). So there is need for the private sector to be more active on the infrastructure investment front. CEF will serve as alternative for rising of money for infrastructure projects through corporate bonds.