Power Finance Corporation (PFC) is likely to become India?s fourth largest lending institution in terms of networth post FPO, jumping from the current ninth position. The non-banking finance company’s (NBFC) networth as on March 31, 2011, is R15,411 crore.

The company is expected to raise aboutR6,000 crore by issuing 17.21 crore fresh shares under the follow-on public offer (FPO), which is scheduled around mid-May.

If the NBFC succeeds in mopping up R6,000 crore from the FPO, its net worth would become R21,411 crore. At that time, PFC, which was placed at the ninth position as on March 31, 2010, might overtake PNB to become the fourth largest lending institution in terms of networth. Punjab National Bank?s networth as on December 31, 2010 is R19,463 crore.

As per RBI?s exposure limit norms, PFC can lend up to 25% and 40% of its networth to a single company and a group company in the private sector.

PFC?s higher networth should help it attract big power private project developers like Reliance Power, Tata Power and Lanco Power which are implementing multiple projects at a time. That should in turn boost the NBFC?s revenue.

PFC has already filed Red Herring prospectus with the stock market regulator for the proposed FPO. The company is set to kick off roadshows in overseas markets this week.

Last year, PFC bagged Infrastructure Finance Company (IFC) status, which increased its capital adequacy ratio requirement from 10% to 15%. The NBFC is mobilising fresh equity to meet the apex bank?s capital adequacy ratio norm.

Although the company?s current capital adequacy is comfortably high, there is risk of its breaching the apex bank?s prudential norm in case PFC steps up lending.

The investment requirement of the power sector is projected at over $400 billion during the coming Five-year Plan. Given that PFC is the largest lender in the Indian power sector, the risk of the company breaching the RBI’s norms is clear unless the company increases its equity base.

Alternatively, it might find itself constrained by RBI’s norms in meeting fund requirements of its customers.

PFC’s outstanding loan sanctions stood at R1.70 lakh crore as on December 31, 2010. On an average, the company disburses R25,000-30,000 crore in loans a year. Its loans assets worked out to R 92,118 crore as on December end. PFC has reported a net profit of R2,618 crore in the financial year 2010-11.

The power sector NBFC is also planning to acquire banking license under a long-term business strategy. It may take over an existing bank or start a new bank. The company is likely to kick off exploratory exercise soon. The process for the selection of of a consultant is on.