NBFCs Do Matter!
The Non-Banking Financial Companies (NBFCs) are playing a pivotal role in India’s growth story in recent years. With RBI relaxing the norms for NBFCs, there has been a spate of registrations. The financial needs of such a huge population are hardly catered to by a limited number of Banks and sensing this gap the private players have jumped to occupy this space.
The biggest advantage for NBFCs is that they can penetrate the rural areas and cater to small businesses and individuals, who are otherwise deprived of such benefits. NBFCs may be considered as small business, but in reality, they are one of the main driving force behind the development of a country like India, as they lend greatly to infrastructure projects.
It is well known that infrastructure projects generally necessitate huge funding and are long term investments, making them risky; thus established, reputed banks shirk away from lending to them. In the last few years, the lending of NBFCs to infrastructure projects has gone up manifold higher, compared to the banks.
NBFCs Driving The Solar Energy Segment
With a great thrust on green, clean and renewable energy by the government, the Solar energy segment has been expanding exponentially in India. This sun-kissed land has the potential to cater to all its energy demands by tapping solar energy! But there are hurdles on way, as the solar energy may be free but setting up a Solar Plant is no child’s play. It demands a high amount of capital and this is where the solar companies face the biggest hurdle.
By rough estimates, setting up of each MW of solar power costs approximately 6 Crores and understandably, without debt financing, it’s not possible until and unless a very big player goes for it. Banks do finance Solar projects but only to big, reputed companies.
The MSMEs and new entrants have to struggle to get loans but now with NBFCs catering to this segment, the landscape has changed and it is easier to get debt.
Prominent NBFCs Financing Solar Projects
Some of the eminent NBFCs that provide debt financing to Solar projects are:
Indian Renewable Energy Development Agency (IREDA)
Rural Electrification Corporation
Power Finance Corporation
Infrastructure Leasing & Financial Services Ltd. (IL&FS)
Taurus Infrastructure Fund
Larsen & Toubro Finances
SBI Capital Markets
Apart from these, there are umpteen players in the Indian market catering to the needs of Solar projects and it all depends on the feasibility of the project.
Important Criteria To Be Met For Sanction of Loan
Company debt should be below 40% of its total assets
The Company should have positive cash flow out of its operations
Debt Service Coverage Ratio should exceed 1.5
Essential Documents To Apply For Loan
Power Purchase Agreement (PPA)
Prime Cost Contract
Quality and Safety Standards
Operation And Maintenance Contract
List and Status of Authorizations and Compliances
Crucial Steps For Procuring Loan
Industry Specific Appraisal
Undoubtedly, NBFCs are taking their role as a substitute to banks very seriously and in their endeavor to occupy the space left by the banks, they are doing a great favor to the country.
The solar energy sector is bound to expand over the years as the environmental pollution demands renewable sources to take over conventional energy.
Contact & Consult MUDS
If you have any query or unanswered curiosity related to NBFCs, their structure, their functioning, and their legalities, please feel free to contact MUDS. Our domain experts will be very happy to help you in every way.