International Finance Corporation (IFC) – the financial arm of the World Bank, and two investment funds managed by IFC Asset Management Company – IFC Financial Institutions Growth Fund and IFC Emerging Asia Fund, have made an equity investment of ₹9.16 billion (~$126 million) for a 4.99% stake in Federal Bank. The equity investment is expected to grow and strengthen Federal Bank’s Environmental, Social, and (Corporate) Governance (ESG), portfolio, with increased financing for green energy projects.

The investment is expected to boost Federal Bank’s Tier 1 capital adequacy ratio (CAR) and expand its micro, small and medium-sized enterprises (MSME) and climate finance portfolios, which are considered key for growth opportunities as India recovers from the Covid-19.

This is IFC’s first investment in India aligned to the Greening Equity Approach, which will enable Federal Bank to reduce its exposure to coal and increase its climate funding.

Commenting on the investment, Mr. Shyam Srinivasan, MD & CEO of Federal Bank, said, “After the bank’s board approved the issuance of shares to the IFC group to the extent of 4.99 percent of the bank’s paid-up capital, IFC has become a significant shareholder of the bank. The addition of this marquee name to the list of our prominent shareholders reinforces the trust and confidence reposed by the IFC group in the bank and its management. The infusion of quality capital further strengthens Tier 1 and overall CAR of the bank.”

With IFC’s equity investment, Federal Bank is expected to grow its green portfolio financing for projects including energy efficiency, renewable energy, climate-smart agriculture, green buildings, and waste management.

India is the world’s third-largest emitter of greenhouse gases (GHGs), with the country needing substantial investments to meet its goals under the Paris Agreement to reduce GHG emissions by 2030. IFC estimates a total climate-smart investment opportunity of $3 trillion in India by the year 2030.

“This move is in line with IFC’s strategy to support green growth by spurring investments to build back better and greener, seizing the opportunities to help India meet its climate goals and build a greener, resilient future,” said Roshika Singh, Acting Country Manager for IFC in India. “The investment is also expected to create tens of thousands of jobs, with micro, small and medium-sized enterprises gaining access to much-needed financing, which will also help ensure an inclusive recovery.”

With Federal Bank’s focus on ESG commitment, IFC will also consult with the bank on developing a new Environmental and Social Management System (ESMS) that will be applied to its entire portfolio.

To further strengthen Federal Bank’s environmental and social sustainability (E&S) capacity, IFC will also implement an E&S technical advisory program.

IFC has been at the forefront of green energy financing. Recently IFC announced an equity investment of up to $15 million in South Asia Growth Fund II (SAGF II), L.P. The fund would aggregate capital commitments to invest in eight to ten companies focused on energy efficiency, clean energy value chain, water recycling and efficient delivery, and environmental products and services in India and Bangladesh.

In April this year, IFC had proposed a $50 million (~₹3.65 billion) loan facility to Italy-based Enel Green Power to fund its 300 MW solar project in Rajasthan’s Bikaner.