Solar Finance and Role Of NBFCs In India By FCS Shweta Gupta


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

  • SBI Macquarie

  • Larsen & Toubro Finances

  • BNP Paribas

  • 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:

  1. Company debt should be below 40% of its total assets

  2. The Company should have positive cash flow out of its operations

  3. Debt Service Coverage Ratio should exceed 1.5

Essential Documents To Apply For Loan:

  1. Power Purchase Agreement (PPA)

  2. Prime Cost Contract

  3. Feasibility Report

  4. Quality and Safety Standards

  5. Operation And Maintenance Contract

  6. List and Status of Authorizations and Compliances

Crucial Steps For Procuring Loan:

  1. Promoters Appraisal

  2. Financial Appraisal

  3. Technical Appraisal

  4. Environmental Appraisal

  5. Industry Specific Appraisal

  6. Legal Appraisal

  7. Insurance Package

  8. Loan Application

Conclusion:

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. 

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