IDFC becomes Infra Finance Company

The regulatory change will allow the Indian private equity firm to more easily borrow at lower costs in addition to increasing the amount it is able to lend to third parties.

India’s Infrastructure Development Finance Company (IDFC), the infrastructure-focused private equity firm, has just been classified as an Infrastructure Finance Company by the Reserve Bank of India (RBI), the company said in a regulatory statement.

IDFC: able to
raise cheaper
money more

To become an Infrastructure Finance Company a firm must, among other requirements, deploy at least 75 percent of its total assets as infrastructure loans.

Under the new classification – the fourth category recently created by RBI under the larger umbrella of Non-Banking Finance Companies (NBFC) – IDFC is now able to more easily raise money in the international markets as well as having more flexibility on the amount of capital it can lend to third parties.

In practice, IDFC can now raise up to 50 percent of its owned funds automatically in the overseas markets – through what is known as external commercial borrowings (ECB) – without having to seek government approval.

Given the phenomenal growth India has been experiencing over the last years, the domestic money market has been unable to supply demand, leading RBI to create ECBs to help plug the gap. Since it’s more expensive to borrow money on the Indian market than on the international money markets, IDFC will now have easier access to lower cost funding.

But the new classification also exempts IDFC from other restrictions that affect Indian NBFCs, such as the inability to lend more than 10 percent of its owned fund to any single borrower or the inability of lending more than 15 percent of its owned fund to any single group of borrowers.

IDFC is India’s largest infrastructure-focused private equity fund manager and currently has more than $1.3 billion in assets under management.