PFC plans to tap RBI borrowing as new low-cost funding source

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Published: June 2, 2020 4:30 AM

PFC and REC combined is one of the biggest non-bank financial institutions in India with total loans of about Rs 6.4 lakh crore at 2019-end and registered as a systemically important institution with the RBI.

As a measure to widen the sources of low-cost funding, state-run Power Finance Corporation (PFC) is planning to tap new avenues, including borrowing from the RBI and the retail market. Affirming PFC’s long-term issuer default rating at ‘BBB-’, with a stable outlook, Fitch Ratings recently said that the lender has benefited from preferential government policies, such as the ability to issue tax-free and capital-gains tax bonds.

As a measure to widen the sources of low-cost funding, state-run Power Finance Corporation (PFC) is planning to tap new avenues, including borrowing from the RBI and the retail market. “We urgently need to increase our share of 54EC capital gain tax bonds, open up new avenues like a borrowing facility from RBI and also tap retail going forward in the near term,” the lender’s newly-appointed chairman and managing director Ravinder Singh Dhillon said on Monday, in his maiden address to employees after coming to the helm of affairs.

Dhillon’s comment on finding new sources of borrowing closely follows the government announcing a fresh loan of Rs 90,000 crore through PFC-REC to salvage the state-run power distribution companies (discom). PFC is said to lend the money at a spread of 150 bps from the competitive rates they will raise the capital. “Already some states like Punjab, Uttar Pradesh, Rajasthan, Manipur and Karnataka have evinced interest to avail this package,” Dhillon said. The amount allotted to the discoms will released directly to the power generators (gencos) which owe money from these entities.

Affirming PFC’s long-term issuer default rating at ‘BBB-’, with a stable outlook, Fitch Ratings recently said that the lender has benefited from preferential government policies, such as the ability to issue tax-free and capital-gains tax bonds. PFC and REC combined is one of the biggest non-bank financial institutions in India with total loans of about Rs 6.4 lakh crore at 2019-end and registered as a systemically important institution with the RBI.

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