Policy on Resource Planning

INTRODUCTION

As tenure of our gold loan portfolio is shorter and our borrowings have relatively longer tenure, we have a very positive Asset Liability gap. As Mufin Green Finance Limited has diversified into other sectors with loan products having longer maturity, this advantage can be gradually diminished. The revised policy aims to document Mufin Green Finance Limited resource raising plans, mix of funds etc.

SCOPE OF THE POLICY

Guidance on:

  •  Long term funds in the mix of resources.
  •  Mix of loan term funds viz Bank loans, ECBs, Loans from Financial Institutions, non-Convertible debentures, subordinated debt etc.
  •  Short term funds in the mix of resources.

LONG TERM RESOURCES:

  1. Retained Earnings

Mufin Green Finance Limited has been ploughing back its profits after declaring dividends to maintain capital adequacy ratio above the regulatory minimum ratio and to maintain low leverages. Mufin Green Finance Limited shall continue the practice in future.

  1. Term loans from banks and other Financial Institutions.

Mufin Green Finance Limited has been raising loans from public and private sector banks and financial institutions. Mufin Green Finance Limited has been treating funds raised with maturity  profile of more than 12 months as funds from long term resources. Mufin Green Finance Limited shall continue to avail term loans from these institutions with maturities ranging from more than 1 year   to 5 years.

  1. External Commercial Borrowings (ECB) and Foreign Currency Denominated loans.

Under the External Commercial Framework, eligible borrowers (includes NBFCs also) can raise ECB up to USD 750 million or equivalent per financial year under automatic route, subject to certain conditions. The facility denominated in foreign currencies can be in the form of loans, bonds and debentures. As per the regulations, minimum average maturity period (MAMP) shall be 3 years and all – in cost shall not exceed Benchmark rate (i.e.; 6-month LIBOR or 6-month EURIBOR, based on the currency) plus 450 bps spread.

In order to diversify sources of funds and to reduce cost of funds, Mufin Green Finance Limited may avail of ECBs, subject to the following conditions.

  1. The facility shall be fully hedged.
  2. All in cost shall be within the regulatory prescribed maximum.
  3. Cost of borrowing including the hedging cost shall be comparable to the prevailing domestic borrowings of similar maturity.

Mufin Green Finance Limited may also avail of fully hedged foreign currency loans from Banks in India if the all-inclusive cost will be comparable to the rupee borrowings.

  1. Issue of Debt Securities.

To strengthen the long-term funds, Mufin Green Finance Limited based on its business requirements and market conditions may issue debt securities, as given below:

  1. Public issue of Rated Secured / unsecured Non-convertible Debentures (NCDs)
  2. Private placement of NCDs
  3. Public / private placement of Tier II bonds.
  1. Public issue of NCDs

The company may subject to the compliance with the applicable provisions of laws and regulations may issue Secured / Unsecured Non-convertible Debentures with maturity period of 12 months and above (NCDs/Bonds) at such intervals by way of public issue at such coupon rates as the company think fit from time to time and shall be listed in one or more recognized stock exchanges in India. The frequency of the issue may be decided by the Board / Committee of the Board from time to time depending on the business environment, market conditions and regulatory provisions in this behalf. Mufin Green Finance Limited shall not extend any loans against the NCDs issued by it.

  1. Issuance of debt instruments under Targeted Long-Term Repo Operations (TLTRO).

To ensure adequate system level liquidity RBI bas been conducting Targeted Long- Term Repo Operations (TLTRO) at the policy repo rate for tenors up to three years. Under TLTRO RBI conduct auctions of term repos to Commercial Banks, proceeds of which should be used for financing targeted entities including non-banking financial companies (NBFCs) and micro finance institutions (MFIs), that have been impacted by COVID-19 disruptions. Investments made by banks with funds drawn under this facility will be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio. Exposures under this facility will not be reckoned under the Large Exposure Framework (LEF). Mufin Green Finance Limited shall make use of the opportunity and shall issue NCDs and other instruments to Banks by way of private placement under the scheme.

1.4.3 Issuance of debt instruments with partial credit guarantee of Government of India.

Government of India offers sovereign guarantee to public sector banks for subscription of bonds / debentures issued by NBFCs, HFCs and MFIs up to 20% of the first loss. Tenor of the bonds under the scheme will have a maturity of 9 to 18 months. The partial credit guarantee helps NBFCs to get a higher credit rating for their debt instruments, which is expected to increase the risk appetite amongst the lenders to invest in such instruments. Mufin Green Finance Limited shall make use of the opportunity and shall issue NCDs and other instruments under this category to Banks by way of private placement.

  1. Sale of assets under Partial Credit Guarantee scheme of Government of India.

Under the scheme, Government of India offers sovereign guarantee to public sector banks for buying loan assets from NBFCs, HFCs and MFIs up to 20% of the first loss. The scheme covers Direct Assignment and securitization for sale of assets. Under this scheme, besides the sovereign guarantee, other credit enhancements like cash collateral, over collaterals etc are permitted. (Under the normal Direct Assignment Transactions, credit enhancement is not permitted). The partial credit guarantee helps NBFCs to get a higher credit rating for the portfolio being sold, which will increase the risk appetite amongst the lenders. Mufin Green Finance Limited shall enter into securitization or Direct Assignment transactions of the eligible assets under this scheme.

  1. Sale of assets through securitization / Direct Assignment.

Banks acquire portfolios, especially priority sector pools from NBFCs. Mufin Green Finance Limited shall continue to raise funds through sale of assets through securitization / Direct Assignment.

  1. Subordinated debt instruments ranking for Tier II Capital.

Mufin Green Finance Limited for meeting its capital requirements or contingency funding may issue unsecured subordinated debt instruments in the form of hybrid or plain vanilla debentures and preference shares. These instruments shall be fully paid up and subordinated to the claims of other creditors and free from restrictive clauses and are not redeemable at the instance of the holder or without the consent of the regulator.

These debt instruments shall be issued for period longer than 5 years and shall have covenants to be eligible for classifying under Tier II Capital. These instruments may be issued to such class or category of investors as the Financial Resources and Management Committee of the Board decides.

SHORT TERM RESOURCES

Facilities with maturity up to 12 months shall be treated as short term resources. The main sources of such funds are cash credit facilities, short term loans / Working Capital Demand and Loans from Banks and Commercial papers (CP). Depending on the ALM requirements the company may borrow funds from banks and other financial institutions/ Corporates from time to time and continue to issue commercial papers with maturity ranging from one month to 12 months.

As per the Guidelines on Loan System for Delivery of Bank Credit, Mufin Green Finance Limited need avail 60% of the Cash Credit facilities from banks as working capital loan. Mufin Green Finance Limited shall explore the possibility of availing the working capital loan component for longer periods. (More than 12 months)

MIX OF RESOURCES

  • Share of long-term financial resources shall be minimum 25%.
  • In compliance of the SEBI guidelines to Large Corporate on raising borrowings through bonds issues, Mufin Green Finance Limited shall raise minimum 25% of its incremental borrowings of above 1 year in the form of NCDs.
  • Borrowings shall be diversified and dependence on single lender shall not exceed 15% of the total borrowings.
  • Share of Commercial Paper (CP) in the total borrowings shall not exceed 20%.
  • Share of foreign currency borrowing shall not exceed 25% of the total borrowings.

Financial Resources and Management Committee of the Board shall have the powers to vary the mix of resources suitable to the market conditions and ALM position.

VALIDITY OF THE POLICY

  • The policy shall be guiding document for resource planning and shall be reviewed every year.
  • This policy is subject to changes in accordance with guidelines, directions issued by Reserve Bank of India, Mufin Green Finance Limited Financial Resources and Management Committee and the Board.