The change in status of Infrastructure Development and Finance Company (IDFC) from that of a financial institution to a non-banking finance company (NBFC) and the subsequent ceilings imposed have adversely impacted its business. This change over had happned after the Reserve Bank of India passed a notification.
It was in August 3, 2006, that the RBI through a notification converted IDFC to a NBFC and subsequently on Feb 22, 2007 issued fresh lending ceiling of 20% of its net-owned funds to a single borrower or company and up to 40% to any single group of borrowers or group of companies.
?IDFC will certainly comply with the regulatory ceiling. However, by doing so, we may be required to raise more equity capital and moderate the growth of its lending business, esp. to the larger corporates?, the infrastructure financing company said in its annual report for 2006-07.
The non-deposit taking infrastructure taking finance company said that it?s asset book comprises of many projects where single borrowers have accessed funds that are in excess of these limits.
While IDFC?s balance sheet was growing through a calibrated process of higher gearing, the RBI?s regulatory caps on loans and investments have limited the extent to which this greater leverage can be used to fund the future growth, the report said.
The continuous rise in the interest rates till April 2007 has already increased the cost of funds and IDFC believes that although the higher cost has not yet affected the pace of infrastructure investment, going forward the loan growth could become somewhat subdued.
During FY07, IDFC recorded a 29% rise in its net profit to Rs 504 crore while assets under management grew to Rs 2,831 crore from Rs 2,550 crore in 2005-06. For the financial year ended March 31, 2007, IDFC?s balance sheet size was up by 49% to Rs 17850.5 crore while its asset book, comprising of loans as well as its equity participation increased by 37% to Rs 14,795.4 crore.
