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Infrastructure Finance Companies of India – Sources of Financing of Indian Infra Projects (IDFC,IL&FS,IFCI,PFC,REC)

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At the time of independence in 1947, India’s capital market was relatively under-developed. Although there was significant demand for new capital, there was a dearth of providers. Merchant bankers and underwriting firms were almost non-existent. And commercial banks were not equipped to provide long-term industrial finance in any significant manner. By the early 1990s, it was recognized that there was need for greater flexibility to respond to the changing financial system. There was a need for these financial institutions to directly access the capital markets for their funds needs.So a number of infrastructure finance companies were set up.Some of them have become fully private like ICICI while others have been partly privatized. like REC and PFC.Besides a number of private companies have recently become big players in the infrastructure financing space like SREI,L&T Finance etc.Note with almost $1 trillion expected to be spent on infrastructure in India over the next 5 years,the scope for these companies is immense if they manage their assets-liabilities in a decent manner

  1. Rural Electrification Corporation (REC) - REC a listed Public Sector Enterprise Government of India with a net worth of Rs. 11,080 Crore as on March 2010.  Its main objective is to finance and promote rural electrification projects all over the country.  It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification projects as are sponsored by them. REC provides loan assistance to SEBs/State Power Utilities for investments in rural electrification schemes through its Corporate Office. The Project Offices in the States coordinate the programmes of REC’s financing with the concerned SEBs/State Power Utilities and facilitate in formulation of schemes, loan sanction and disbursement and implementation of schemes by the concerned SEBs/State Power Utilities.
  2. Infrastructure Development Financial Corporation (IDFC) – is India’s leading integrated infrastructure finance player providing end to end infrastructure financing and project implementation services. Their business can be broadly classified into Corporate investment banking (project finance, investment banking), alternative asset management (private & project equity), public market asset management (IDFC Mutual fund). The company provides financial intermediation for infrastructure projects and services, adding value through innovative products to the infrastructure value chain & asset maintenance of existing infrastructure projects. It focuses on supporting companies to get the best return on investments.
  3. The Industrial Finance Corporation of India (IFCI) - was founded in July 1948, as the first Development Financial Institution in the country to cater to the long-term finance needs of the industrial sector. The newly-established DFI was provided access to low-cost funds through the central bank’s Statutory Liquidity Ratio which in turn enabled it to provide loans and advances to corporate borrowers at concessional rates. Until the establishment of ICICI in 1956 and IDBI in 1964, IFCI remained solely responsible for implementation of the government’s industrial policy initiatives. It made a significant contribution to the modernization of Indian industry, export promotion, import substitution, pollution control, energy conservation and generation through commercially viable and market- friendly initiatives. Cumulatively, IFCI sanctioned financial assistance of Rs 462 billion to 5707 concerns and disbursed Rs 444 billion since its inception. In the process, IFCI catalysed investments worth Rs 2,526 billion in the industrial and infrastructure sectors.
  4. Power Finance Corporation (PFC) – is an Institution in financing for sustainable development of the Indian Power Sector and its linkages, with an eye on global operations. The total sanctions & disbursements for the year ended 2009-10 amounted to Rs.65,466 crores & Rs.25,808 crores respectively. The resources mobilized for the year ended Dec 2010 amounted to Rs.764,465 million (source: http://www.pfcindia.com/Content/LendingOperations.aspx). The clientele consists of State Electricity Boards, State Power Utilities, State Electricity/Power Departments, Other State Departments engaged in the development of power projects, Central Power Utilities, Joint Sector Power Utilities, Equipment Manufacturers & Private Sector Power Utilities.
  5. Infrastructure Leasing & Financial Services Limited (IL&FS) is one of India’s leading infrastructure development and finance companies .IL&FS was promoted by the Central Bank of India (CBI), Housing Development Finance Corporation Limited (HDFC) and Unit Trust of India (UTI). Over the years, IL&FS has broad-based its shareholding and inducted Institutional shareholders including State Bank of India, Life Insurance Corporation of India, ORIX Corporation – Japan and Abu Dhabi Investment Authority.IL&FS has branched to become a leading player in venture capital,private equity,asset managment,road building.It has a number of listed subsidiaries in the Indian stock market
  6. India Infrastructure Finance Company Ltd (IIFCL) was established in January 2006 as a wholly owned Government of India company and commenced its operations from April 2006.It was established under the Scheme for Financing Viable  Infrastructure Projects through a Special Purpose Vehicle called the  India Infrastructure Finance Company Ltd, broadly referred to as SIFTI. India Infrastructure Finance Company Ltd (IIFCL) is providing long term financial assistance to various viable infrastructure projects in the country in terms of the SIFTI. The authorized capital of the company is Rs20 billion and has sanctioned financial assistance of Rs 187.60 billion to 107 projects involving a total project cost of Rs1492.03 billion.
  7. L&T Infrastructure Finance Company is a part of L&T Finance Holdings Limited which is a wholly owned subsidiary of L&T.Note L&T is India’s biggest private infrastructure company with interests in a diverse number of fields.LT Infra commenced operations in January 2007.
  8. Srei Infrastructure Finance Limited is another major private sector player which is present in the following segments Project Finance, Advisory and Development, Infrastructure Equipment Finance, Sahaj e-Village, Venture Capital, Capital Market, Quippo – Equipment Bank, Viom – Telecom Towers and Insurance Broking.Srei has a JV with the  Tata Group through Viom Networks Limited for their shared passive telecom infrastructure business and BNP Paribas for Equipment Financing business.

Infrastructure Finance Company Status by RBI Advantages

a) It is entitled to lend up to 25% of its owned funds to a single borrower in the infrastructure sector, compared to 20% of owned funds by other NBFCs that have not been granted IFC status.

b) It is also eligible to raise ECBs up to 50% of owned funds without prior RBI approval.

c) It can raise capital through issuance of infrastructure bonds at comparatively lower yields, as holders of such bonds are entitled to tax benefits

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Abhishek Shah

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