The Union government is proposing to grant the status of public financial institution to Infrastructure Development Finance Corporation (IDFC) in the forthcoming budget.
For this, the department of company affairs (DCA) will have to exercise powers granted to it under the provisions of Section 4A of the Companies Act to declare IDFC as a public financial institution. According to government sources, DCA has agreed to declare IDFC as a 4A company.
Being declared a 4A company imparts the following benefits on an institution
* A 4A company may convert any debentures or loans into equity shares of the company
* The restrictions regarding transfer of shares under the provisions of Section 30A-E do not apply to it
* Banks/institutions investing in the debt of 4A companies enjoy relaxation in their provisioning norms
In order to be declared 4A company, an institution my be established/constituted under any of the Central Acts, or not less than 51 per cent of the paid up equity share capital of such an institution should be held or controlled by the central government.
Currently, the Companies Act, 1956 recognises five public finance institutions, the Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India, Industrial Development Bank of India, the Life Insurance Corporation of India and the Unit Trust of India as public financial institutions.
DCA has also declared several other institutions as public finance institutions over the years by utilising its notifying powers. These institutions include the Industrial Reconstruction Corporation of India, the General Insurance Corporation of India, the National Insurance Co Ltd, New India Assurance Co Ltd, the Oriental Fire and General Insurance Co ltd and the United Fire and General Insurance Co Ltd.
IDFC was set up to provide credit enhancement to infrastructure projects and to extend funds and guarantees for long tenor which the existing financial institutions may not be able to provide.
