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The reserve bank of India decided that having a separate category for infrastructure finance NBFCs was important in the public interest and for the bank’s ability to supervise the credit system in the nation’s best interests. One of the activities carried out by the NBFC firm is lending money to infrastructure companies. Infrastructure Finance Loans are mostly given by businesses to the infrastructure industry.
In India, a particular class of NBFCs known as Infrastructure Finance Companies (IFCs) is dedicated to offering long-term funding for infrastructure projects. IFCs are essential in assisting the nation’s infrastructure sector’s expansion and development. This blog will discuss the infrastructure finance company in detail.
Table of Contents
An infrastructure Finance Company is one of the categories of NBFC or a financial firm that specialises in lending money to infrastructure businesses. The RBI considers An IFC a non-banking financial company in the following ways:
It refers to the loan facility provided by NBFCs to a borrower for exposure to the infrastructure sectors and subsectors listed below.
The RBI states that “Credit facility means a term loan, project loan subscription to bonds, debentures, preference shares, equity shares in project companies acquired as part subscription amounts to be “in the nature of advance” or any form of the long-term funded facility provided to a borrower company engaged in developing, operating, and maintaining infrastructure facilities that are projected in any of the sub-sectors as specified.
IFC awards credit based on the following principles:
When a minimum of 75% of assets are allocated to the infrastructure sector, an NBFC is authorised as an infrastructure finance company. The Indian government1, in an effort to address the problem faced by infrastructure businesses, authorised a plan for financing viable infrastructure projects through a special purpose vehicle known as India Infrastructure Finance Company Ltd. “Adopt best practises in financing infrastructure and develop core competencies in facilitating infrastructure development” is the stated objective of IIFCL.
Capital Requirements
(1) Every NBFC-IFC must maintain a minimum capital ratio of Tier I and Tier II capital equal to at least 15% of its total risk-weighted assets on the balance sheet and of the risk-adjusted value of off-balance sheet items.
(2) The Tier I capital at any given time must be at least 8.5 percent by March 31, 2016, and 10 percent by March 31, 2017, respectively.
Explanations:
I. On balance sheet assets–
(1) The balance sheet assets in these Directions have been assigned varying levels of credit risk expressed as percentage weights. Therefore, to get an asset’s risk-adjusted value, the value of each asset or item must be multiplied by the appropriate risk weights. The total must be considered when calculating the minimum capital requirement. The weighted sum of funded components, as described below, will be used to determine the risk-weighted asset:
II. Off-balance sheet items
In general, NBFC-IFCs must include the risk-weighted amounts of off-balance sheet items that are tied to the market-related and non-market-related off-balance sheet items. This is how they determine the total risk-weighted credit exposure. An off-balance sheet item that causes credit exposure must have its risk-weighted amount determined in two steps:
Off-Balance sheet Items are further divided into:
IFCs have specialised knowledge and experience in financing infrastructure. They are aware of distinctive qualities and difficulties faced by diverse infrastructure sectors. By facilitating the flow of long-term finance, fostering public-private partnerships, encouraging innovation in project financing, and removing the funding gap for infrastructure projects, infrastructure finance companies help to develop the infrastructure sector as a whole.
IFCs are essential to mobilise and direct money for infrastructure development, bridge the financing gap, and promote sustainable economic growth. IFCs support the development of vital infrastructure assets that drive economic activity that improves living standards by offering long-term finance, expertise and creative solutions.
An infrastructure Finance Company is one of the categories of NBFC or a financial firm that specialises in lending money to infrastructure businesses.
Yes, the India Infrastructure Finance Company LTD (IIFCL) is an NBFC established to offer long-term financial support to viable infrastructure projects through the Special Purpose Vehicle (SPV) scheme.
IIFCL is a wholly owned Government of India Company that was established in 2006. It complies with the relevant prudential standards of the Reserve Bank of India and has registered with RBI as NBFC-ND-IFC since September 2013.
The state-owned Indian Renewable Energy Development Agency (IREDA) has recently obtained the Infrastructure Finance Company status from the Reserve Bank of India.
The list of NBFCs registered with the RBI as on March 31, 2023, is 9443.
BAJAJ Finance LTD is a deposit-taking Non-Banking Financial Company registered with the Reserve Bank of India. It is a subsidiary of Bajaj Finserv Ltd and operates in the business of lending. It is India’s largest NBFC finance company by turnover.
Also, Read: New Trend in NBFC Business Model, Challenges and a Scalable Business model.
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