‘INFRASTRUCTURE FINANCE COMPANY (IFC)’ STATUS

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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:

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.

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