The State government has ordered the merger of two profit-making Non-Banking Financial Companies – the Tamil Nadu Power Finance and Infrastructure Development Corporation Limited (TNPFC) and the Tamil Nadu Transport Development Finance Corporation Limited (TDFC) - functioning respectively under the Energy and Transport Departments, and brought them under the control of the Finance Department.
In an order issued on Thursday, the government accorded in-principle clearance for the amalgamation of the two NBFCs and authorised the Finance Department to take the necessary steps such as appointing consultants and professional advisors for the process of amalgamation etc., and to seek necessary clearances from the regulatory authorities concerned.
Besides the TNPFC and the TDFC, two other Non-bank financial institutions (NBFCs) dealing with infrastructure financing in the State are the Tamil Nadu Urban Finance and Infrastructure Development Corporation Limited (TUFIDCO) and the Tamil Nadu Industrial Development Corporation Limited (TIDCO). Among the four NBFCs, the TNPFC and the TDFC are collecting public deposits, and have been funding capital expenditure, and working capital needs of the Tamil Nadu Generation and Distribution Corporation Limited (Tangedco) and all the State Transport Undertakings. Though the TIDCO and the TUFIDCO have deposit-taking licences, they do not collect public deposits.
The government, in its order, said these institutions were pioneering efforts when they were established, and had served the State well over the years. It was time to take the next step and create a robust infrastructure financing institution. The Government of Tamil Nadu aimed to achieve the ambitious goal of a $1 Trillion economy, which would require substantial investments in Infrastructure.
Robust State-owned NBFC
“Towards this end, existing modes of funding need to be enhanced substantially through innovative ways of financing to match the growing requirements in the infrastructure sector. One major innovation required in this direction is the creation of a robust state-owned NBFC that would cater to the requirements of various infrastructure sub-sectors. This has been felt as a long-standing need and has been the recommendation of various expert committees,” the order said.
A comprehensive study of State-run financial institutions such as the TNPFC and the TDFC, among others, to assess their risk profile, improve operational efficiency and reduce the cost of funds was conducted last year. The study, which also included assessing the possibility of merging these institutions for risk diversification, operational efficiency, and possible tax planning, had recommended that the TNPFC, TDFC and the TUFIDCO be amalgamated to create a unified entity due to their similar operational structure and objectives. This merger is expected to pool resources, streamline allocation processes and potentially improve credit ratings.
It was also felt that bringing the TNPFC and the TDFC under the administrative control of the Finance Department would be essential to streamline fund management, overcome regulatory challenges and strengthen infrastructure project financing. This strategic alignment with expert committee recommendations would avoid a conflict of interest, address objections raised by audit and optimise resource utilisation, fostering a more resilient and cohesive financial framework crucial for the State’s development.
The government said following the amalgamation, a new sizable entity would be created with the existing assets of the TNPFC and the TDFC, and the mobilisation of funds currently deposited in banks and other financial institutions. All government entities were mandated to place their funds in the State NBFCs in appropriate investment instruments.
As on March 31, 2022, TDFC has total public deposits to the tune of ₹8,011.75 crore. While TDFC offers a minimum of 7.5% interest for 12 months and 8% for 48 months for senior citizens, TNPFC provides a minimum of 7% for 12 months and a maximum of 8.25% for 60 months for senior citizens.