REC, PFC, IREDA shares drop after RBI tightens power financing rules

Power financing stocks dip: The shares of Indian Renewable Energy Development Agency Ltd (IREDA) plunged more than 7 per cent on Monday along with other power financing stocks including Power Finance Corporation (PFC) which fell as much as 12.5 per cent and the Rural Electrification Corporation Limited (REC) that was down by 10.8 per cent. 

The PFC and REC stocks had hit record highs in the week gone by due to a strong rally on the back of strong Q4 earning

The reason behind this sharp fall in power financing stocks is the Reserve Bank of India’s (RBI) recent announcement of a set of draft regulations aimed at tightening the oversight of lending to projects under development. As per these proposed guidelines, financial institutions would need to set aside 5 per cent of the total loan amount as general provisions for both existing and new loans.

This initiative follows the RBI's earlier release of draft guidelines on project financing, which outlined the necessity for a 5 per cent general provision on all existing and fresh project loans categorised as being in the "construction phase." This phase is defined as occurring prior to the commencement of commercial operations.

As of 12:58 pm, other power stocks including NTPC Ltd, Power Grid Corporation of India Ltd, Adani Green Energy, Adani Power Ltd, Tata Power Company, Adani Energy Solutions, and JSW Energy were trading in red at BSE. 

The proposed regulations are intended to apply to both banks and non-bank lenders. They mandate the provision requirement for 'standard' project loans, including both infrastructure and non-infrastructure projects, as well as those directed towards real estate ventures.