The Reserve Bank of India is not comfortable with granting development finance institution status to IFCI for which the state-owned lender has applied to the Government. “IFCI had approached government seeking the status but the RBI has raised some concerns and is not comfortable with IFCI being given the status. They (RBI) have their reasons,” a senior finance ministry official said.
According to RBI, the common characteristics of DFIs as a category is the fact that they are not banks but still accept public deposits and extending long-term finance to different industrial sectors. A DFI is defined as ‘an institution promoted or assisted by Government mainly to provide development finance to one or more sectors or sub-sectors of the economy’.
The Delhi-based company has sought Finance Ministry’s and the Central Bank’s approval for the status, which will help the company reduce its borrowing cost and boost its long-term fund raising capacity. If the status is provided to IFCI then its public borrowings will receive the same rating as government borrowings, an official of the company said.
According to the company’s annual report as on 31st March 2014, there was reduction in cost of borrowings by 8.2 per cent to Rs 1,666 crore in the financial year 2013-14 from Rs 1,815 crore in the fiscal year 2012-13 on the back of substantial reduction in interest rates on bank loans and prepayment of certain high cost bank borrowings. During the same period, the total income of the company was Rs 2,951 crore which was higher by 7 per cent than total income of Rs 2,759 crore in the financial year 2012-13. IFCI has Rs 18,000 crore of debt in its books as on 31st March, 2014 with a debt-equity ratio of 2.6.
Also, the development finance institution status will help the company borrow from overseas as it will get the benefit of sovereign rating and will be backed by government guarantee. In the last one year period, the foreign institutional participation has increased from 5.12 per cent to 9.62 per cent of the total equity float.
Currently the lender falls under the non-banking finance company category. “We have sent application (for development finance institution status), we have not got any rejection from them. Hopefully they are doing their due-diligence on that. Because it is not only government has to agree, Reserve Bank also has to agree, it is a long process,” the IFCI official said.