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IREDA Likely to Face Limited Impact from RBI Guidelines, says IREDA CMD

Renewable energy projects financed by IREDA have shorter construction periods compared to other infrastructure-financing NBFCs.

May 07, 2024. By Anurima Mondal

Reserve Bank of India (RBI) has proposed to tighten financing norms. This requires lending companies to set aside higher capital of upto 5 percent for providing loans to projects that are under construction.

These draft guidelines aim to improve appraisal mechanisms and discipline in consortium financing, focusing on plugging loopholes to prevent NPAs.

In view of these additional requirements, lenders exclusively following RBI’s provisioning norms and lenders with high exposure to under-construction projects with long gestation periods in their AUM would be highly impacted.

Talking about IREDA as one of the lenders, Pradip Kumar Das, Chairman & Managing Director (CMD) of Indian Renewable Energy Development Agency Limited (IREDA) said, “IREDA is likely to face limited impact, given our alignment with higher provisioning standards that ensure resilience to these additional norms. More specifically, RE projects that IREDA finances (such as solar and wind projects) typically have shorter construction periods compared to other infrastructure-financing NBFCs. Our Portfolio largely consists of commissioned projects already in the operational phase, thereby limiting the impact of additional provisioning requirements. IREDA follows IND AS accounting standards that has resulted in additional provisions of around 92 Cr over the existing RBI norms on Income Recognition, Asset Classification, and Provisioning (IRACP), as of March 31, 2024. Any impact of the increase in RBI provisioning requirements will be offset by this cushion.”

He added, “Profit After Tax (PAT) is expected to be largely unaffected, while there may be marginal impacts on Net Worth and Capital Adequacy Ratio (CRAR). However, with our currently healthy CRAR levels, any marginal impact can be accommodated accordingly. Overall, these draft guidelines are poised to improve asset quality and encourage disciplined practices among NBFCs and banks.”

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