L&T Finance Ltd., the wholly owned subsidiary of L&T Finance Holdings Ltd., is raising $550 million through external commercial borrowing (ECB) from the International Finance Corporation (IFC), a part of the World Bank Group, BNP Paribas, Citibank, and DBS Bank Limited, it announced on Thursday.
The company will receive $275 million in the first tranche, of which $125 million alone will be contributed by IFC.
The funds will be utilised by L&T Finance to expand its farm equipment finance book by extending loans to farmers for buying equipment and modernising farming, it said in a statement.
“NBFCs have a crucial role to play in financial inclusion in India. Lending scientifically and methodically to customers who do not have access to last mile credit is the next growth opportunity for NBFCs. We are investing in technology, and data and analytics to lead this change,” said Dinanath Dubhashi, Managing Director & CEO, L&T Finance Holdings.
“Investments from organisation like IFC, which follows stringent due diligence before investing, reaffirms our strategy for growth and diversification of liabilities,” he added.
According to the National Bank for Agriculture and Rural Development, there is a formal financing gap of $80 billion in agricultural financing. Currently, purchasing a tractor and other farm equipment is a difficult decision for small and marginal farmers due to lack of timely financing options. Eighty-six percent of Indian farmers are smallholders.
“Addressing the large rural finance gap and supporting modernisation of agriculture are key components in sustaining India’s growth story and meeting the government’s commitment to double farmers’ income by 2022,” said Hemalata Mahalingam, Manager, Financial Institutions Group, IFC South Asia.
“This project will promote inclusiveness in accessing finance,” she said.
L&T had also issued non-convertible debentures (NCDs) in March and April 2019. In addition to farm equipment finance, the rural book of L&T Finance also comprises two-wheeler finance and micro loans for rural women micro entrepreneurs.
The liquidity crisis within the country is prompting Indian non-banking financial companies (NBFC) to turn to overseas investors for funding. IFC was one of the early institutional investors in the Indian NBFC space.
The institution had previously extended $100 million in debt to L&T Infrastructure Finance for on-lending to developers of solar power projects and $75 million to L&T Housing Finance for on-lending to developers of affordable housing units.
This May, it also led a $222-million debt investment round in Murugappa Group’s non-banking financial company, Cholamandalam Investment and Finance Company Ltd. IFC had previously funded the company in 2010 and 2014.
Since 1956, IFC has invested in nearly 400 companies in India, providing almost $15 billion in financing from its own account and mobilisation from external resources.
As of June 2018, IFC’s committed portfolio in India is over $6 billion.