Cabinet nod to bring IIFCL under RBI regulation

The Union cabinet in a decision on Thursday approved the proposal to bring India Infrastructure Company (IIFCL) within the regulatory oversight of the Reserve Bank of India, as is the case with other non-banking finance companies in the country.

This would bring IIFCL on par with the special funding agencies of the government such as Power Finance Corporation and Rural Electrification of Corporation. The proposal implies the IIFCL would have to become compliant to RBI’s capital adequacy norms prescribed for NBFCs. RBI presently prescribes a minimum tier-I capital (paid-up equity plus general reserves) of 12 per cent. This ratio is expected to be reached within three years after the NBFC registration.

Briefing reporters after the meeting, information and broadcasting minister Ambika Soni said the government had also decided to increase the authorised capital of IIFCL to Rs 5,000 crore from the present Rs 2,000 crore. The authorised capital would be further increased to Rs 8,000 crore after the approval of the finance ministry, Soni said.

The cabinet also approved amendments to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI). The amendment Bill entailed introduction of the enforcement of security, interest and recovery of debts laws. The amendments would enable banks to prove their ability to recover over dues from borrowers and thereby help bring down the cost of working funds for the banks and contain build-up of non-performing loans.

Banks and financial institutions, have since long so­ught amendments to the SARFAESI Act. Soni said banks were presently faced with numerous delays in recovery of defaulted loans on account of delays in disposal of recovery proceedings.

Soni said that the cabinet also approved the policy for acquisition of raw material assets abroad by Central Public Sector Enterprises in the country. The policy would permit PSUs in agriculture, mining, manufacturing and electricity that have a three-year track record in making net profits to acquire assets abroad. Among the CPSUs expected to benefit from the cabinet decision include Coal India and National Thermal Po­wer Corporation, both of wh­ich have been looking for acquiring assets in Indonesia and Australia.

The cabinet also enhanced the powers of the Maharatna and Navaratna companies for such acquisitions. Soni said a coordinating committee of secretaries, headed by the cabinet secretary would vet the acquisition proposals. This committee, she said, would also look into requests for government involvements, including funding support.

The cabinet also approved the formation of a jo­int venture between Hooghly Dock & Port Engineering with a private player through an open bid process. The government, also approved the waiver of government loans and interest amounting to Rs 628.86 crore from the shipyard as on March 2011. The waiver also included the company’s liabilities on minimum alternative tax. The combined impact of the waivers would be about Rs 777 crore, Soni said.