New Delhi: In its quest to get India Infrastructure Finance Co. Ltd (IIFCL) to more than double its annual lending in the next fiscal, the government is willing to put in extra equity capital into the infrastructure lender over and above the Rs500 crore promised in the Union Budget, as well as overturn an earlier decision that would have forced the company to adhere to rules framed by the Reserve Bank of India (RBI) for finance companies.
According to a senior finance ministry official, who did not want to be named, the decision to suspend the move to get IIFCL to follow RBI norms for finance companies is to make sure such regulations do not hinder the company’s stiff lending targets.
IIFCL was set up in January 2006 as a state-owned financier of road, railway, airport, port and power projects, which often struggle to get long-term funding. It has been asked to more than double its disbursements in fiscal 2011.
In his Budget speech on 26 February, finance minister Pranab Mukherjee said the lender’s disbursements are expected to reach around Rs20,000 crore by March 2011, from the Rs9,000 crore it will manage by the end of this month.
IIFCL will also double the amount of refinance it provides to Indian banks from Rs3,000 crore this year, while last year’s take-out financing scheme will provide around Rs25,000 crore in the next three years, the finance minister said.
Graphic: Ahmed Raza Khan/Mint
The company’s share capital was Rs1,800 crore, according to Budget documents. In the 2010-11 Budget, the government announced it would infuse another Rs500 crore as equity.
IIFCL currently does not fall under the purview of RBI or any other financial sector regulator. In an interview with Mint in November, finance secretary Ashok Chawla had said: “We want them to get subjected in the same manner in which RBI regulates NBFCs (non-banking financial companies).”
“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 currently follows RBI guidelines on most things except capital adequacy and exposure norms.
According to Raman Aggarwal, co-chairman of Finance Industry Development Council, an industry body of NBFCs, RBI’s norms limit finance companies’ exposure to 10% of advances for a single firm and 25% for a group. The capital adequacy mandated is 12% after accounting for the risks associated with loans, he said.
IIFCL has been asked by the finance ministry to act as a “force multiplier” in infrastructure financing. So far, the bulk of the company’s loans have been to power and roads. According to IIFCL’s website, as on 21 October, 46% (Rs9,629 crore) of the sanctioned loans were to power projects. Another 40% of sanctioned loans (Rs8,275 crore) were to road projects. The company had outstanding sanctions of Rs20,888 crore to part-finance infrastructure projects worth Rs1.68 trillion.
“The finance ministry may want the least amount of flexibility,” said Amrit Pandurangi, who heads transport practice at audit and consulting firm PricewaterhouseCoopers, on the government’s options for IIFCL.
He said that while IIFCL may need more flexibility than other NBFCs, the government should still put in place some regulatory oversight considering the company may well be the largest infrastructure lender in the country in the next few years. “Some items, like exposure to a particular industry, they should be given some flexibility. But some others, like liquidity and exposure to a specific group, they should be allowed to decide on their own,” Pandurangi added.