New Delhi: India Infrastructure Finance Co. Ltd, or IIFCL, conceived as the leading edge of the Union government’s infrastructure financing initiative, will soon be asked to follow the central bank’s guidelines for finance companies, but simultaneously be kept out of its regulatory purview.
The development would result in streamlining the way the government-owned lender functions and, at the same time, retain room to manoeuvre according to the government’s aims.
“We want them to get subjected in the same manner in which RBI (the Reserve Bank of India) regulates NBFCs (non-banking finance companies),” finance secretary Ashok Chawla told Mint in a recent interview.
“It will not be under RBI’s purview, but the same sort of prescriptions will apply to it. It will be monitored by the government,” Chawla said.
IIFCL was conceived as the Union government’s financial special purpose vehicle to supplement other forms of lending in infrastructure in 2005-06. The company, with a balance sheet size of Rs18,906 crore (as of 30 September), has so far voluntarily followed RBI guidelines on most things except capital adequacy and exposure norms.
Analysts say that any move to reduce prudential regulations could be fraught with risk considering the fact that the lender had a higher cost of raising capital compared with banks, and also did not independently appraise its own projects.
“If the spread available is not significantly above the cost of capital and then you are making huge loans and (there is) no appraisal, you are taking a huge risk,” said Amrit Pandurangi, who heads the transport and infrastructure practice for consulting firm PricewaterhouseCoopers. “Somebody needs to regulate IIFCL, whether it is RBI or somebody else.”
Some company officials, speaking on condition of anonymity, said the government had hobbled IIFCL, not allowing it to lend more than 20% of total project loans and restricting the extent to which it can refinance bank loans to infrastructure.
IIFCL chairman and managing director S.S. Kohli declined to comment, saying he had not received any instructions in this regard.
The finance ministry would soon approach the cabinet to institutionalize the framework, said a senior official in the ministry, who did not want to be named.
Separately, Chawla, who explained the logic behind the move, said: “We are acutely conscious of the fact that IIFCL is a big business, has lots of exposure and is raising a lot of money which should be regulated in a proper manner. Just because the government owns it, it should not fall between the cracks.”
The government’s plan for IIFCL found favour with D.R. Dogra, managing director and chief executive officer of Credit Analysis and Research Ltd. Dogra, who was a banker before he moved to the credit rating agency, felt the framework proposed for IIFCL would allow it to find the balance between being nimble and disciplined.
“It (IIFCL) should be less regulated, but should have some regulations at least,” he said.