Home India PFC, REC will drop interest rates to double lending in three years
PFC, REC will drop interest rates to double lending in three years

PFC, REC will drop interest rates to double lending in three years


NEW DELHI: State-run power financiers Power Finance Corp (PFC) and Rural Electrification Corp (REC) will slash rates to single digits when lending to renewable energy projects following the government’s order setting tough targets for the two companies to double their exposure in the next three years.

In order to achieve the targets, PFC will have to sanction Rs 1.5 lakh crore loans and REC Rs 1 lakh crore by 2019. Both the companies are likely to make formal announcements very soon.

In a three-hour long review meeting with Piyush Goyal, minister for power, coal, renewable energy and mines, the two companies on last Thursday were asked to grow their businesses by 100 per cent by 2019, with specific focus on renewable energy projects. The meeting with industry and the two PSUs had lot of surprise elements with REC and PFC unaware of the presence of industry while the private firms were not informed about Goyal’s presence.

In early July, Goyal had asked PFC and REC for presentations on special focus on renewable energy.

After industry complaints, the minister prodded the companies to take up smaller renewable projects and asked the two firms to reduce cycle time for loan evaluation to disbursal to 60-90 days for renewable energy projects that take about a year to get commissioned. The companies take about 170 days for the same which has been constantly reducing. The ministry has also asked the two companies to form external committee consisting of sectoral experts for an independent evaluation of lending to renewable energy projects. REC sanctioned Rs 2,966 crore in 2015-16 to renewable energy projects, up four times from Rs 548 crore in 2014-15

The two companies have recently reduced their interest rates to renewable projects. REC lends to renewable energy projects at between 10.5 per cent and 11.5 per cent depending on factors like project viability and promoter’s strength. Whereas interest rates on loans to conventional and hydropower projects are higher at 11.75 per cent to 13.40 per cent.

The move is aimed to boost renewable sector as well as utilise cash that the two financiers will receive in lieu of loans lent to state-run power distribution companies post implementation of Ujwal Discom Assurance Yojana (UDAY).

Under the debt recast scheme, REC and PFC will recover their debt exposure to state discoms in cash. The two companies have an exposure of over $20 billion to state discoms. The non-banking Finance companies plan to utilise the cash to finance energy projects, mainly green energy plants such as solar, wind and biomass power plants.

Lack of new conventional coal and gas projects by private companies has prompted the two companies to shift focus to renewable sector. Presently, renewable energy projects constitute nearly 10 per cent of the loan portfolio of REC and PFC.



Anand Gupta Editor - EQ Int'l Media Network


Your email address will not be published. Required fields are marked *