The Union Cabinet chaired by Prime Minister Narendra Modi has approved the proposal for providing additional equity support to IIFCL to the tune of ₹ 5,300 crore in financial year 2019-20 and ₹ 10,000 crore in financial year 2020-21. This will be done through regular Budgetary support and / or through issuance of recapitalization bonds. The timing, terms and conditions will be decided by the Department of Economic Affairs. The Cabinet has also approved for increasing the authorized capital of IIFCL from ₹ 6,000 crore to ₹ 25,000 crore.

Major Impact:

This will enable IIFCL to create requisite headroom for borrowing, thus enabling it to finance big ticket infrastructure projects in line with Government of India's target to invest ₹ 100 lakh crore in infrastructure sector over the next five years.

Background

IIFCL, a wholly-owned Government of India (Gol) company set up in 2006, is the principal entity which provides long term finance to viable infrastructure   projects   across   sectors.   It   is   a   Non-Banking   Financial Company - Infrastructure Finance Company (NBFC-IFC) registered with RBI since September, 2013.   The authorised capital and the paid up capital of the company as on date stand at ₹ 6000 crore and ₹ 4702.32 crore respectively.

Government has announced its intention to invest ₹ 100 lakh crore in infrastructure over the next five years. Infrastructure investment to this extent will require large amount of equity and debt. The role of IIFCL in making debt funding possible will be crucial as participation by IIFCL in funding a project opens up possibilities of co-financing by other lenders including larger banks. It is therefore necessary to infuse additional capital in IIFCL to enable it to fulfil its mandated role of financing major infrastructure projects.

Increase in authorised capital enables expanded infrastructure financing through government equity support and recapitalisation bonds to bolster lending. The Cabinet approved additional equity support to IIFCL to be provided via budgetary allocations and/or recapitalisation bonds, with timing and terms to be decided by the Department of Economic Affairs, and authorised an increase in IIFCL's authorised capital to create borrowing headroom for financing large infrastructure projects.