‘INFRASTRUCTURE FINANCE COMPANY (IFC)’ STATUS

Disclaimer: Copyright infringement not intended.

Context

• The Reserve Bank of India (RBI) has granted an ‘Infrastructure Finance Company (IFC)’ status to Indian Renewable Energy Development Agency (IREDA). 

BACKGROUND

What is Infrastructure finance?

• “Infrastructure loan” means a credit facility extended by NBFCs to a borrower for exposure in the following infrastructure sub-sectors:

Sl.No.	Category	Infrastructure sub-sectors
1.	Transport	i. Roads and bridges ii. Ports iii. Inland Waterways iv. Airport v. Railway Track, tunnels, viaducts, bridges1 vi. Urban Public Transport (except rolling stock in case of urban road transport)
2.	Energy	i. Electricity Generation ii. Electricity Transmission iii. Electricity Distribution iv. Oil pipelines v. Oil/Gas/Liquefied Natural Gas (LNG) storage facility vi. Gas pipelines
3.	Water & Sanitation	i. Solid Waste Management ii. Water supply pipelines iii. Water treatment plants iv. Sewage collection, treatment and disposal system v. Irrigation (dams, channels, embankments etc) vi. Storm Water Drainage System
4.	Communication	i. Telecommunication (Fixed network)  ii. Telecommunication towers
5.	Social and Commercial Infrastructure	i. Education Institutions (capital stock) ii. Hospitals (capital stock) iii. Three-star or higher category classified hotels located outside cities with population of more than 1 million iv. Common infrastructure for industrial parks, SEZ, tourism facilities and agriculture markets v. Fertilizer (Capital investment) vi. Post harvest storage infrastructure for agriculture and horticultural produce including cold storage vii. Terminal markets viii. Soil-testing laboratories ix. Cold Chain

Notes:

1. Includes supporting terminal infrastructure such as loading/unloading terminals, stations and buildings
2. Includes strategic storage of crude oil
3. Includes city gas distribution network
4. Includes optic fibre/cable networks which provide broadband / internet
5. Includes Medical Colleges, Para Medical Training Institutes and Diagnostics Centres
6. Includes cold room facility for farm level pre-cooling, for preservation or storage of agriculture and allied produce, marine products and meat.

 

What is an IFC and what are the eligibility or entry point norms for registration of an IFC-NBFC with RBI?

IFC is a non-deposit accepting loan company which complies with the following :

1. A minimum of 75 per cent of the total assets of an IFC-NBFC should be deployed in infrastructure loans;
2. The company should have minimum net-worth of Rs 300 crore,
3. The CRAR of of the company should be at 15% with Tier I capital at 10% and
4. The minimum credit rating of the company should be at 'A' or equivalent of CRISIL, FITCH, CARE, ICRA, BRICKWORK or equivalent rating by any other accrediting rating agencies.

Their request must be supported by a certificate from their Statutory Auditors confirming the asset pattern of the company as on March 31, of the latest financial year. 

What are the credit concentration norms for IFCs?

IFCs may exceed the concentration of credit norms as provided in paragraph 18 of the aforesaid Directions as under:

In lending to

• any single borrower by ten per cent of its owned fund, (i.e at 25% of Owned Funds) and
• any single group of borrowers by fifteen per cent of its owned fund, (i.e. at 40% of Owned Funds)

In lending and investing (loans/investments taken together) by

• five percent of its owned fund to a single party, (i.e.at 30% of Owned Funds); and
• ten percent of its owned fund to a single group of parties, (i.e. at 50% of Owned funds).

The extant norms for investment for both single party and single group of parties will remain same as in Para 18 of the Directions, i.e.

• Investment in shares of another company cannot exceed 15% of its Owned Funds
• Investment in shares of a single group of companies cannot exceed 25% of its Owned Funds.

What is the risk weight IFCs have to maintain on assets covering PPP and which have completed one year of commercial production?

• Infrastructure Finance Companies can maintain risk weight at 50% for assets covering PPP and post-commercial operations date (COD) projects which have completed at least one year of satisfactory commercial operations and which are backed by a buyback guarantee by a designated Project / Statutory authority under a Tripartite Agreement.

What constitutes ‘credit facility’ under the definition of infrastructure loan?

• The term ‘credit facility’ means a term loan, project loan subscription to bonds/ debentures/ preference shares/ equity shares in a project company acquired as a part of project finance package such that such subscription amounts to be “in the nature of advance” or any other form of long term funded facility provided to a borrower company engaged in developing/ operating and maintaining/ developing, operating and maintaining infrastructure facilities, that is a project in any of the sub-sectors as specified in the definition of infrastructure loan.

Significance of IREDA getting the IFC status

• With the IFC status, IREDA will be able to take higher exposure in RE financing. The IFC status will also help the company to access wider investor base for fund mobilisation, resulting in competitive rates for fundraising. 
• The recognition of IREDA as an IFC will increase the investors’ confidence, enhance the brand value, and generate positive outlook in the market. The grant of IFC status is a recognition of IREDA’s 36 years of infrastructure financing and development with focused development of Renewable Energy. With IFC status, IREDA will keep contributing towards Govt. of India’s target of 500 GW installed capacity of non-fossil fuels by 2030.

IREDA Indian Renewable Energy Development Agency Limited is a Public Limited Government Company and a Non-Banking Financial Institution formed for setting up projects relating to new and renewable sources of energy and energy efficiency/conservation with the motto: “ENERGY FOR EVER”. It is a Mini Ratna (Category – I) Government of India Enterprise with the objective of promoting, developing and extending financial assistance and under the administrative control of Ministry of New and Renewable Energy (MNRE). IREDA has been promoting, developing and financing new and renewable sources of energy with the motto since 1987. It finances all RE technologies and value chain such as solar, wind, hydro, bio-energy, waste to energy, energy efficiency, e-mobility, battery storage, biofuel and new and emerging technologies.

PRELIMS PRACTICE QUESTION Q. Choose the correct answer with reference to the following statements. A.    IFC is a non-deposit accepting loan company with a  condition that a minimum of 50 per cent of the total assets of an IFC-NBFC should be deployed in infrastructure loans. B.    Indian Renewable Energy Development Agency Limited is formed in 2004 as a statutory and autonomous organisation under the Government of India and administratively controlled by the Ministry of New and Renewable Energy 1) A only 2) B only 3) Both A and B 4) Neither A nor B Answer: 4

 

https://www.pib.gov.in/PressReleseDetailm.aspx?PRID=1906539