Reserve Bank of India (RBI), India’s central bank, has classified Rural Electrification Company (REC), a state-run power company, as an infrastructure finance company (IFC), enabling it to lend to power projects on favourable terms, a source close to the company told Infrastructure Investor.
REC will now be classified under a new category recently created by RBI within the overall classification of Non-Banking Finance Company (NBFC). The new classification will enable REC to engage in infrastructure lending at a lower cost and on a more flexible basis, according to norms set by RBI.
Under the classification, Infrastructure Finance Companies (IFCs) are allowed to have higher exposure for lending and investment to a single borrower or a group of borrowers. It also allows companies to raise up to 50 percent of its owned funds automatically in the overseas markets – through external commercial borrowings (ECB) – without having to seek government approval.
The classification also exempts REC 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.
In addition to this, REC also becomes eligible for issuance of tax-free infrastructure bonds for raising funds, as per RBI norms.
REC is the fourth company after Indian infrastructure giant IDFC, Indian engineering firm Larsen & Toubro and power trading company PTC India to be accorded IFC status by RBI.