India’s largest banking institution State Bank of India (SBI) and Australia-based Macquarie Capital Group Ltd, on Wednesday, have made announcement about their plan to float a $2 billion private equity fund that would directly invest in Indian Infrastructure projects.

SBI and Macquarie have already signed a memorandum of understanding (MoU) to manage the proposed fund. Besides, the International Finance Corporation (IFC) will also act as one of the fund’s cornerstone investors.

SBI and Macquarie Capital will hold 45% each in the proposed fund management company, whereas the remaining 10% will be possessed by IFC.

In order to begin the fund, the three entities have decided to make a contribution of $450 million.

Afterwards, the joint venture will raise additional funds from both domestic as well as global institutional investors. The fund is scheduled to launch by the end of the second quarter of 2008.

Mr. OP Bhatt, SBI chairman will be the chairman of the company, whilst CEO and MD will be nominated by Macquarie Capital.

This is the SBI’s initial private equity fund in which it plans to have different associations for other segments. The fund aims to offer equity and equity-like capital for investments in traditional infrastructure including airports, ports, roads and power. It will also look at investment chances in infrastructure-related assets and businesses.

The government said that the Indian infrastructure segment requires an investment of more than $500 billion by 2012 to keep pace with Asia’s third-largest economy which has been rising at an average of 8.8% over the last four years.

Some of other players have also rolled out infrastructure funds. The country’s second largest banking institution, ICICI Bank, is also looking at launching a $2-billion infrastructure fund.

Axis Bank is also in the process of raising $500 million. Citigroup and Blackstone, together with IDFC and India Infrastructure Finance Company are also establishing a $5-billion fund for financing infrastructure development. IIFCL and 3i have also joined hands in order to establish another infrastructure fund of about $5 billion.

Recently, Vision Global has launched a $1-billion India Infrastructure-focused fund known as ‘Vision Global India Infrastructure Fund’.