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Infrastructure Finance Companies; An NBFC Institution

Shailza Sharma

| Updated: Sep 06, 2019 | Category: NBFC

Infrastructure Finance Companies

The reserve bank of India, having considered it necessary in public interest and being satisfied that, to enable the bank to regulate the credit system to the advantage of the country, it is necessary to have a separate category of Infrastructure Finance NBFC’s category. Infrastructure companies are one the NBFC institution, engaged in the business of providing loans to infrastructure companies. Infrastructure Finance Companies are predominantly engaged in providing loan to the infrastructure sector. The creation of a separate category of NBFC’S (NBFC-IFC), expected to play an important role in banks as a provider of infrastructure finance.

What is Infrastructure Finance Company?

Infrastructure Finance Company is another category of NBFC, or we can say it’s a financial institution engaged in the business of providing loans to infrastructure companies.

According to RBI, “an IFC is defined as a Non-Banking Financial Company if;

  1. A minimum of 75 percent of its total assets shall deploy in infrastructure loan.
  2. net owned funds of Rs. 300 crore or above
  3. Minimum credit rating ‘A’ or equivalent of CRISIL, FITCH, CARE, ICRA or equivalent rating by other accrediting rating agencies.   
  4. CRAR of 15 percent (with a minimum Tier I capital of 10 percent).

What is Infrastructure Loan?

It means the credit facility extended by NBFCs to a borrower for exposure in the following categories of infrastructure sectors and sub-sectors.

Infrastructure Loan

What does credit facility mean under the definition of Infrastructure Loan?

According to RBI,

‘’Credit facility means a term loan, project loan subscription to bonds/debentures/preference/share/equity share in project company acquired as part subscription amounts to be ‘’in the nature of advance’’ or any form of long term funded facility provided to a borrower company engaged in developing/operation and maintaining/developing, operating and maintaining infrastructure facilities, that is projected in any of the sub-sector as specified the definition of infrastructure loan” .

Read our article:Loan Exposure of NBFC Increased: A Complete Analysis

What norms does IFC follow for granting Credit/Loan?

IFC grants credit as per the following basis –

  1. In lending to
    1. any single borrower by ten percent of its owned fund, (i.e. at 25% of owned funds)
    2. any single group of the borrower by fifteen percent of its owned fund (i.e. at 50% of owned funds)
  • In Lending and Investing (loan Investments
    • Five percent of its owned fund to a single party (i.e at 30% of owned Funds); and
    • Ten percent of its owned funds to a single group of parties (i.e at 50%  of owned funds)
IFC0902103

In the year 2005-2006, hon’ble finance minister, while presenting the union budget for 2005-2006 accepted the need and significance of having a suitable infrastructure in India and made the following announcement –

According to Mr.P. Chidambaram (Ex-Finance Minister) “The importance of infrastructure for rapid development cannot be overstated. The most glaring deficit in India is the infrastructure deficit. Investment in infrastructure will continue to be funded through the Budget. However, there are many infrastructure projects that are financially viable but, in the current situation, face difficulties in raising resources. I propose that such projects may be funded through a financial Special Purpose Vehicle ….. The SPV will lend funds, especially debt of longer-term maturity, directly to the eligible projects to supplement other loans from banks and financial institutions. The government will communicate the borrowing limit to the SPV at the beginning of each fiscal year”

Subsequently, RBI has registered IIFCL, a wholly govt. Owned company in January 2006, and commenced its operation wholly from April 2006.   The main Aim of IIFCL is to provide long term finance to the workable infrastructure projects. IIFCL has been registered as NBFC-ND-IFC since September 2013. Till 30th September 2015, the paid-up capital of IIFCL has noted 5,000 crore and Rs. 3,900 crore. Total cumulative gross sanctions made by IIFCL till 30th September 2015, was over 63,800 crore under direct lending to more than 360 projects and if we talk about cumulative disbursements, over 45,00 crore has been disbursed by IIFCL.

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Conclusion

An NBFC is authorized as Infrastructure Finance Company when a minimum of 75% of assets are deployed for the infrastructure sector. Working over the issue faced by infrastructure companies, the government of India[1], approved a scheme for Financing Viable Infrastructure Projects through a Special Purpose Vehicle called India Infrastructure Finance Company Ltd.  The mission of IIFCL is to “adopt the best practice in financing infrastructure and develop core competencies in facilitating infrastructure development.

Also, Read: New Trend in NBFC Business Model, Challenges and a Scalable Business model.

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Shailza Sharma

Miss Shailza Sharma, BA.LLB graduate from Himachal Pradesh University. She holds an experience of 2.5 years in various Legal companies and organizations.

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