Mumbai, India, July 29, 2021—Increased
financing for climate friendly projects as well as more financing for small
businesses to help accelerate India’s economic recovery from COVID-19 are
expected in the wake of a $126 million (₹916 crore) equity investment in
Federal Bank, one of the country’s leading private sector banks.
IFC, and two investment funds managed by IFC Asset Management Company, IFC Financial Institutions Growth Fund, LP and IFC
Emerging Asia Fund, LP have made an equity investment
for a 4.99 percent stake in Federal Bank Limited (FBL). The investment will also support FBL’s commitment to environmental,
social and governance (ESG) standards, while strengthening its Tier 1 capital
adequacy ratio (CAR) and expanding its micro, small and medium sized enterprises
(MSME) and climate finance portfolios – key for growth opportunities as
the country recovers from the pandemic.
Mr. Shyam
Srinivasan, MD & CEO of Federal Bank said, “After the
Bank’s board approved issuance of shares to the IFC group to an extent of 4.99
percent of the bank's paid-up capital, IFC has become a significant shareholder
of the bank. The addition of this marquee name to the list of our prominent
shareholders reinforces the trust and confidence reposed by the IFC group on
the bank and its management. The infusion of quality capital further
strengthens Tier 1 and overall CAR of the bank.”
The equity
investment is expected to see Federal
Bank grow and strengthen its ESG portfolio, with increased green
portfolio financing for projects including energy efficiency, renewable energy, climate smart agriculture,
green buildings, and waste management.
India ranks
third globally in terms of greenhouse-gas (GHG) emissions, with the country
needing substantial investments to meet its goals under the Paris Agreement to
reduce GHG emissions by 2030. IFC
estimates a total climate-smart investment opportunity of $3 trillion in India
to the year 2030.
“This move is
in line with IFC’s strategy to support green growth by spurring investments to
build back better and greener, seizing the opportunities to help India meet its
climate goals and build a greener, resilient future,” said Roshika Singh, Acting Country Manager for IFC
in India. “The investment is also expected to create tens of
thousands of jobs, with micro, small and medium sized enterprises gaining
access to much needed financing, which will also help ensure an inclusive
recovery.”
India’s MSMEs have faced increasing difficulty gaining access to the
financing they need, even before the impacts of the pandemic. Critical for the
country’s development, around 63 million MSMEs typically contribute nearly 30
percent to GDP, but about 11 million MSMEs remain fully or partially excluded from
India’s formal financial system with an estimated financing gap of around $400
billion. The COVID-19 pandemic has further squeezed the availability of funding
for MSMEs.
In addition, the investment also marks IFC’s first in India aligned to the Greening Equity Approach, which will enable FBL—an IFC partner for over a decade—to reduce its exposure to coal and increase its climate lending.
With Federal Bank’s focus on ESG, IFC will also consult with the bank on
developing a new Environmental and Social Management System (ESMS) that will be
applied to its entire portfolio. To further strengthen FBL’s environmental and social sustainability (E&S) capacity,
IFC will also implement an E&S technical advisory program.
Under the World Bank Group (WBG) Climate Change Action Plan, IFC is putting climate action at the
heart of its development work. IFC is working to align investments with
the goals of the Paris Agreement, intensifying support to help clients
decarbonize, and deploying standards and tools to catalyze private sector
financing for climate
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