Indian Renewable Energy Department Agency Ltd. (IREDA) has initiated a refinance initiative with support from the National Clean Energy Fund (NCEF). This scheme aims at providing low cost refinancing to scheduled commercial banks and financial institutions who are in the business of financing existing biomass power & small hydro power projects. 

Clean and sustainable energy generation has been the supreme goal of the Government as there is a huge outcry from environmentalists with regards to growing energy demands and their effects on global warming. The National Clean Energy Fund was founded by the Government of India as a major initiative to encourage ecologically sustainable growth while addressing India's energy security challenge and as a contribution to the global effort to meet the challenges of climate change by implementing a check on coal produced in India as well as imported coal. 

Objective of the IREDA NCEF Refinance Scheme

The scheme aims to reinvigorate the operations of existing biomass power & small hydro power projects by increasing funding costs for these projects by offering refinancing at concessional interest rates, with support from the National Clean Energy Fund (NCEF). 

Scope & Financing Structure of the IREDA NCEF Refinance Scheme

  1. This scheme covers Small Hydro Power (SHP) & Biomass combustion based grid connected power generation projects.

  2. IREDA would provide refinancing funds received from NCEF to scheduled commercial banks and financial institutions (including IREDA) for their loans to the Renewable Energy project categories listed above.

  3. Refinancing not exceeding 30% of the outstanding loans (including the Funded Interest Term Loan, FITL, if any) of the above categories of projects would be made available to scheduled commercial banks / financial institutions (including IREDA), in their books, at a concessional interest rate under the IREDA scheme.

Rate of Interest under the Scheme

The rate of interest on refinancing from IREDA to the banks/financial institutions shall be 2% per year. The scheduled commercial banks and financial institutions are required to provide the refinanced part of the loan to the borrower at the same interest rate, i.e. 2% per year.

Tenure of the Refinance Scheme 

Repayment period for the refinancing amount should be commensurate with the repayment period of the banks or financial institution for that project. The maximum repayment period cannot exceed 10 years along with a 6 month moratorium/grace period from the date of disbursement/release of the refinancing amount from IREDA.

Institutions eligible to avail this Refinancing Scheme

Scheduled commercial banks and financial institutions would be eligible for IREDA refinancing under this scheme. The grant of refinancing shall be at the sole discretion of IREDA, which shall also determine the availability and extent of refinancing. The scheduled commercial banks/financial institutions shall be required to comply, in conjunction with the following parameters, to be eligible for availing refinance under the Scheme:

  1. They should be profit-making for the last three years and should not have any accumulated losses. 

  2. Gross Non-Performing Assets, as a percentage of Gross Advances, should normally not exceed 5% of the entire portfolio of the lending institution. State/ Central PSU Banks/Govt. NBFC’s/ Govt. financial institutions are exempted from this condition. 

  3. The Capital Adequacy Ratio should be consistent with the prescribed regulatory standards.

Operational parameters of the project that would be taken into consideration for eligibility

Operational grid connected power generation projects:

  1. Combustion based Biomass power projects up to installed capacity of 10MW. In the event of biomass-based combustion, projects of more than 10 MW may also be considered, but the refinancing amount will be limited to a pro rata amount of up to 10 MW only, subject to the maximum refinancing amount that can be used as per the scheme, i.e. Rs.15 Crores.

  2. All Small Hydro Power Projects up to an installed capacity of 25 MW. Subject to a maximum amount of refinancing that can be made available under the scheme, i.e. Rs.15 Crores.

  3. In view of tariffs, the viability of projects has been affected by abnormal fuel cost escalation issues & any other inevitable adverse conditions. The project should be revived/operated following the use of the NCEF refinancing loan from IREDA.

  4. Plants should have an operating history of at least 2 years after the project has been commissioned and the average 2-year PLF should be at least 20% for Biomass Power and 15% for Small Hydro Power (SHP) projects.

  5. The project should also have a minimum average DSCR (Debt Service Coverage Ratio) of 1.1 after taking into account the amount of IREDA refinancing and should be able to service the loan.

Exceptions under the scheme

The following entities and loan components are not covered under the scheme: 

  • Declared wilful defaulters, as per RBI norms

  • Declared Non-cooperative borrowers, as per RBI norms

  • Projects that have been inoperative for last 5 years

  • Company having net profits as per the latest Audited Balance sheet/Annual Report will be ineligible. Companies having Net Loss are eligible even though they have Cash Profits. 

  • Projects/Loans, which availed One Time Settlement (OTS) are not eligible under the scheme

  • Loan Sanctioned against securitization of future cash flows will not be eligible

  • Working Capital Limits/Loans are not eligible 

Security for the refinancing from IREDA to the scheduled commercial bank/financial institution

The security for the loan will be completely undertaken by the scheduled commercial bank/financial institution. IREDA refinancing would be secured by a charge on the book debts of the scheduled commercial bank/financial institution. Additional security, such as charges on immovable properties or movable properties, Government guarantee, promoter, sponsor bank, etc. in favour of IREDA may be presented at the discretion of IREDA.

Security for the loan offered by the scheduled commercial bank/financial institution to the primary borrower

The security obtained by the scheduled commercial bank/financial institution from the primary borrower will be in conformity to their internal guidelines. They may include primary security of adequate value in the form of a hypothecation/other charge on financed assets. They may, at their discretion, accept security of adequate value in the form of other assets such as receivables, assets, life insurance policies, bank fixed deposits, or any other security that may be considered appropriate to fully secure the loan.

Application process for the refinancing scheme

Step 1: Sanction of Refinance - Once the eligibility requirements have been met, a scheduled commercial bank/financial institution wishing to refinance under the Scheme will submit its request for refinancing of the loan to IREDA. IREDA will issue a letter informing the Commission of the sanction of refinancing following the review and approval of the refinancing proposal.

Step 2: Legal Documentation - The applicant is required to furnish the following documentation: 

  • Resolution duly adopted by its Board of Directors or any other committee designated for the purpose or a direct approval by its Competent Authority to avail refinance from IREDA and execute documents, etc. in favour of IREDA, as may be required.

  • Specimen signature of the officials in this behalf

  • The scheduled commercial bank / financial institution must conclude an IREDA refinancing agreement under the Scheme and any other documents that IREDA may request in this regard.

Step 3: Application for disbursal - Following the approval and completion of the legal documentation, including the refinancing documents, the scheduled commercial bank / financial institution may apply for the release of refinancing in respect of qualified loans outstanding in their books after the re-establishment / operation of the venture. The request shall include information of the qualifying loans issued and the outstanding sum by the scheduled commercial bank / financial institution for which refinancing is sought from IREDA.

Step 4: Mode of release - The release of the refinancing shall be made by cheque or credit (through RTGS or otherwise) to the bank account of the lending institution as stated in writing by IREDA.

End note: This scheme is seen as a need of the hour for reviving troubled operations of existing Biomass Power & Small Hydro Power Projects affected due to unforeseen circumstances. The refinance that is offered at concessional rates of interest is expected to ease the financial distress of these projects, thus boosting the sustainable energy production market.