IRDAI proposes allowing insurers to invest 20% in debt of public infra SPVs

Context:

The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a regulatory change permitting insurers to invest up to 20% of their controlled fund in debt instruments issued by public limited Special Purpose Vehicles (SPVs) operating in the infrastructure sector.

Key Highlights of the Proposal:

• Investment Scope
  • Insurers may invest up to 20% of their funds in debt instruments issued by infrastructure SPVs.
  • Condition: Projects must have commenced commercial operations with stabilised cash flows.
• Removal of Guarantee Requirement
  • The draft circular removes the earlier requirement of a parent company guarantee, making it easier for insurers to invest.
• Use of Funds
  • Proceeds must be used only for refinancing existing debt of the SPV.
• Asset Quality Criteria
  • Underlying debt must be classified as standard in the lender’s records.
  • Issued instruments must have a minimum AA credit rating to qualify as approved investments.

What is an SPV?

A Special Purpose Vehicle (SPV) is a legally separate entity created to carry out a specific project or purpose — often used in infrastructure, real estate, energy, road, and transport projects.

Public Limited SPV

A public limited SPV is:

• Registered as a public limited company under the Companies Act
• May raise funds from the capital markets
• Has greater financial transparency and regulatory oversight
• Operates only for a specific project or activity