Government-owned Power Financing Institutions Reduce Lending Rates (2)

State-owned non-banking financial firms, Power Finance Corporation (PFC), and REC will reduce lending rates by up to 2% points from April 1, 2021.

According to the PTI, the PFC said, “PFC and REC as group companies have been aligning operations to realize synergies. As part of such effort, PFC and REC have now decided together to reduce lending rates up to two percentage points.”

The new lending rates will be effective from April 1, 2021. PFC and REC are the prime financiers in the Indian power sector, with a significant market share.

The initiative was undertaken to offer competitive rates, in line with the rates offered by peers in the market, the PFC statement said.

The move will also help PFC and REC continue their business growth in the future and maintain reasonable spreads.

The reduction in lending rates will help both PFC and REC offer lower rates to power utilities, reducing their borrowing costs, thereby reducing their interest payments..

Last year, the Union Power Minister R.K. Singh had approved the proposal to accept letters of undertaking (LoU) from the Indian Renewable Energy Development Agency Limited (IREDA), PFC, and REC, to be used as bank guarantees in renewable tenders.

In August 2020, the Ministry of Power had announced that it had received the government’s approval for a one-time relaxation to extend loans to the distribution companies (DISCOMs). Earlier, the loans were capped at 25% of the working capital of the previous year’s revenues of the DISCOMs under Ujwal DISCOM Assurance Yojana (UDAY). This relaxation was to provide liquidity to the power sector and ensure payments by the state governments to DISCOMs.