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Power Finance Corporation will now have more flexibility in raising funds and lending to private power project developers with RBI extending infrastructure finance company (IFC) status to it. Power Finance Corporation (PFC) may now take an additional lending exposure of up to five per cent of its funds in case of a single borrower or a group of borrowers in the private sector. The capital adequacy ratio requirement for PFC would also go up from 10% to 15%, necessitating mobilisation of additional equity by the company. PFC's current CAR is estimated at 17.38%. That means PFC will now have to take a decision on a follow-on public offer.RBI earlier classified Non-Banking Financial Companies (NBFCs) under three categories: asset finance companies, loan companies and investment companies. It recently introduced a fourth category, of an IFC. It has extended some benefits in lending/borrowing exposure, risk weight and raising ECB (external commercial borrowing) to an NBFC classified as an IFC. An NBFC-IFC may also apply for issuance of infrastructure bonds. PFC, a non-deposit accepting/holding NBFC, had requested RBI for this status.
Significantly, the share of private investment in the Indian power generation sector is rising fast. However, private developers are seeing fund crunch as banks are unable to increase their lending to them because of RBI's sectoral exposure limit norms. Banks have already exhausted their quota for the sector. PFC, a non-banking finance company, remains a key source of funding for private players.
RBI earlier classified NBFCs under three categories - asset finance companies, loan companies and investment companies (IC). But it recently introduced IFC as a fourth category. The Apex bank has extended some benefits in lending and borrowing exposure, risk weight and external commercial borrowing. In addition, an NBFC with IFC status can also apply for issuance of infrastructure bonds.
"PFC had requested RBI for categorising it as IFC. Following this request, RBI has communicated that PFC has been classified as an IFC with effect from 28 July, 2010," the company said in a statement.
PFC can now take an additional lending exposure up to 5% of its owned funds in case of a single borrower as well as group of borrowers in the private sector. PFC will have also have more flexibility in mobilising funds at competitive rates because of enhanced external commercial borrowing limit provided by the RBI to non-banking financial companies in the IFC category.
The new status will allow the power sector NBFC to mobilise funds by issuing infrastructure bonds. Banks are a major source of funds to PFC.
Earlier, banks could lend up to 15% of their capital funds to PFC. But they can now raise their exposure to 20%.
Besides, because of the new status, risk weight of banks' finance to PFC come down from 100% to 20%.
Source- Indian Express
