PFC dumps banking, insurance foray plan

Power Finance Corporation (PFC) has put its proposals to enter the banking and insurance sectors on the backburner. It is, however, open to the idea of funding captive coal mining projects and LNG terminals for power plants, said Chairman and Managing Director VK Garg.

"We are looking at funding projects in both backward and forward linkages for power plants. This includes transmission and distribution as well as fuel supply, captive mining "" both in India and abroad, LNG terminals and other such projects," he said after signing a memorandum of understanding with 10 banks and the Life Insurance Corporation of India to finance power projects.

He, however, said there were no plans to lend to projects for acquiring oil and gas assets abroad. Garg said lending to fuel projects was a PFC initiative and other members of the consortium would have to take a decision in this regard individually.

Under the consortium funding arrangement, a single window clearance would be provided to borrowers, saving time and avoiding duplication of effort, Garg said.

The consortium arrangement would extend to sharing of data, common terms and conditions, including security and setting of interest rates. Borrowers would have the freedom to borrow from any of the consortium members.

Under this approach, there would be a ceiling on the amount to be financed. However, given the capital-intensive nature of power projects, a floor limit of Rs 100 crore was likely to be set.

"The consortium can address about 20-25 per cent of the total requirement for financing in the power sector," Garg said.

"The consortium approach would make it easier to convince boards and since project appraisal would be done by PFC, it would be easier for banks to take a decision on the project," KN Prithviraj, CMD, Oriental Bank of Commerce said.

The power sector development financial institution, which was considering entering the retail banking business or taking over a bank in order to get access to cheaper funds, has decided against the move as it would entail significant addition to costs, said Garg.

The proposal to enter insurance has also been dropped for now, he said, adding that the company would instead focus on providing fee-based risk assessment services for insurance companies.

It could also consider buying umbrella policies for assets being financed by itself and for those created by state electricity boards (SEBs). "Such a move would cut premiums for SEBs by almost half," said Garg. The corporation was eyeing the life insurance sector and had planned to tie up with existing players in the sector.

On the India Power Fund, he said as and when it became operational, would consider converting debt into equity in case of good projects. "Once the construction risk is over, in case of good projects where yields would increase, conversion of debt into equity would be considered," he said.