Ministry of Corporate Affairs amended Guidelines for Public Financial Institutions

The Union government on 3 June 2011 amended guidelines for Public Financial Institutions (PFIs) permitting private companies, primarily engaged in infrastructure funding, to attain the status of a PFI as well as seek tax and other benefits.

Under the new guidelines for Public Financial Institutions notified by the Ministry of Corporate Affairs, any company which has been in existence for more than three years and earns more than 50 per cent income from industrial and infrastructural financing can opt to be a PFI.

The following are the revised guidelines:

•    A company should be established under a special Act or the Companies Act;
•    The company’s main business should be industrial/ infrastructural financing;
•    The company must be in existence for at least 3 years and their financial statement should show that their income from the area exceeds 50 per cent of their income.
•    The companies should have a net-worth of Rs 1,000 crore and should be registered as a infrastructure finance company with the RBI or as a housing finance company.

As per the earlier guidelines, companies were needed to fulfil just two criteria for qualifying as a PFI: The company had to established or constituted by or under any Central Act, or if the government held more than 51 per cent of the paid-up share capital of such institution.

The ministry highlighted while issuing new guidelines that in case of central public sector undertakings, the restrictions would not apply with respect to financing specific sector(s) and net-worth.

The PFIs enjoy certain benefits under the Companies Act, Recovery of Debts due to Banks and FIs Act, and the Income Tax Act, among others. The PFI status helps companies to raise funds by issuing bonds to insurance companies, provident funds, mutual funds and RNBCs.