Power Finance Corporation (PFC) and REC Limited, public finance infrastructure companies, have reduced their lending rates by 40 basis points for all types of loans.
The companies revised lending rates to 8.25% for loans of renewable energy projects to give the sector boost, where long-term funding is required. The rates were reduced due to the lower cost of borrowings by both companies in the past year.
Earlier this month, REC raised $1.175 billion (~₹82.45 billion) from a consortium of seven banks as the Mandated Lead Arrangers and Bookrunners to provide low-cost financing for power projects.
R.K. Singh, Minister for Power and New & Renewable Energy, is pleased with both companies’ continued efforts to reduce rates and remain competitive.
“Continued reduction in lending rates by REC and PFC will help power utilities borrow at competitive rates and invest in improving the power sector infrastructure, thereby benefitting the consumer by way of reliable and cheap power,” Singh said.
PFC and REC have also been tasked with managing the liquidity crisis of the distribution companies.
Speaking about the reduction in lending rates, Vinay Pabba, Chief Executive Officer and Founder of VARP Power said, “PFC and REC are large lenders to renewable energy projects. The tariff quoted by developers in tenders is very sensitive to the cost of debt. The reduction in interest rates would help developers drop tariff by ₹0.10 (~$0.0013)-₹0.15 (~$0.0020)/kWh for the same level of returns. Therefore, it is a positive step for the sector and would compensate developers facing other issues like higher supply chain costs and modules prices.”
Last year, both companies reduced lending rates cumulatively by up to 3%. In April 2021, both companies decreased lending rates by up to 2%. PFC and REC Limited already provide short-term loans at interest rates of 6.25%.
Manjesh Nayak, Director and Co-founder of Oorjan Cleantech welcomed the step and said the reduction in interest rates would support the power sector. Both companies have reduced interest rates by 3% in the last year. In the current scenario, where hardware costs have an upward pressure, the reduction in interest rates would bring some relief to the renewable energy developers. However, to boost renewable energy infrastructure further, there is still room to bring down interest rates for renewable energy borrowers below 8%.
Mercom had earlier reported that PFC issued its maiden Euro Green Bond of £300 million (~$353 million) under the U.S. Global Medium Term Note Program. The bonds are expected to have a tenor of seven years at a coupon of 1.841%.