Merger of two State government-owned non-banking financial companies put on hold

The State government’s proposed merger of two Non-Banking Financial Companies-Tamil Nadu Power Finance and Infrastructure Development Corporation Ltd. (TNPFC) and the Tamil Nadu Transport Development Finance Corporation Ltd. (TDFC) has been put on hold.

The merger has been deferred without any time limit as per management of TNPFC, as both companies are implementing the same system before merger, credit ratings firm India Ratings and Research said in its report on TNPFC. 

TNPFC majorly lent to Tamil Nadu Power Distribution Corporation Ltd (TNPGCL), erstwhile Tamil Nadu Generation and Distribution Corporation Ltd (Tangedco), the firm noted.

Post the de-merger of Tangedco in 2024 into three separate entities, the major portion of loans and advances of TNPFIDCL were distributed among two customers –  TNPGCL (93.01% of loans and advances) and Tamil Nadu Green Energy Corporation Limited (TNGECL) (6.85%). The remaining 0.14% loans and advances were extended to employees and deposit holders in fiscal 2025, India Ratings said.

It assigned ‘IND A’ rating to TNPFC’s fixed deposit with a stable outlook.

Tamilnadu Transport Development Finance Corporation extends loans only to eight state road transport corporations, India Ratings added.

In November 2023, the State government had issued an order for merging TNPFC and TDFC, functioning respectively under the Energy and Transport Department, and bringing them under the control of the Finance Department.

The State government aims  to achieve the ambitious goal of a $1 trillion economy, which would require substantial investments in infrastructure. 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 NonBanking Financial Company that would cater to the requirements of various infrastructure sub-sectors, as per the order.

Bringing TNPFC and TDFC  under the administrative control of the Finance Department would be essential to streamline fund management, to overcome regulatory challenges, and strengthen infrastructure project financing, it had said.

As per the Government Order, a new new and sizeable entity, with the existing assets of TNPFC and TDFC and mobilization of funds currently deposited in banks and other financial institutions is proposed to be established under the administrative control of the Finance Department to ensure that necessary funds are periodically invested by the Government to meet capital risk adequacy ratios.

 Investment Experts and Professional Experts would be suitably accommodated to manage the new company, with directors representing relevant departments, it said.

 The new entity would continue to have separate verticals for lending to the power sector and transport sector to fulfill credit requirement of these sectors. The existing administrative set up is proposed to be appropriately accommodated in the new entity, as per the order.