RBI Greenlights PFC’s IFSC Finance Company in GIFT City

What is PFC?

Power Finance Corporation (PFC) is an infrastructure finance company under the power ministry. It provides financial assistance to various power projects in the country, such as generation, transmission, distribution, and renewable energy. PFC also offers consultancy services and promotes energy efficiency and conservation. As of March 2023, PFC had a loan portfolio of Rs 3.9 lakh crore and a net profit of Rs 8,444 crore.

What is GIFT City?

Gujarat International Finance Tec-City (GIFT City) is India’s first operational smart city and international financial services centre (IFSC). It is located near Ahmedabad in Gujarat. It aims to attract global and domestic firms to set up their offices and operations in a world-class infrastructure with tax incentives and regulatory concessions. As of December 2023, GIFT City had 265 entities registered with a committed investment of over $28 billion.

What is the RBI’s approval?

The Reserve Bank of India (RBI) on January 9, 2024, issued a no objection letter to PFC for setting up a wholly-owned finance company in the IFSC situated in GIFT City. The finance company will be able to raise funds from foreign investors and lend to Indian and overseas borrowers in the power sector. The finance company will have an initial capital of $100 million and will start operations by March 2024.

Why is it important?

PFC’s entry into the IFSC is expected to open up new business opportunities and establish its global presence. The finance company will be able to access low-cost funds from international markets and offer competitive financing options to its clients. It will also be able to diversify its sources of income and reduce its dependence on domestic borrowings. PFC expects to lend about $1 billion in the first year of its operations in the IFSC.

What are the challenges?

PFC will have to comply with the regulatory framework of the IFSC, which may differ from the domestic norms. It will also have to face competition from other entities operating in the IFSC, such as banks, insurance companies, and asset management companies. Moreover, it will have to manage the currency and interest rate risks associated with foreign exchange transactions.

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