SME Featured South Asia

IFC announces US$126m equity investment in India’s Federal Bank Limited to finance SMEs, ‘green’ recovery

New Delhi, India – The global development institution that focuses on the private sector in developing countries, International Finance Corporation (IFC), and two investment funds managed by IFC Asset Management Company – IFC Financial Institutions Growth Fund and IFC Emerging Asia Fund – have made a US$126m (₹916 crores) equity investment in Federal Bank Limited (FBL), India’s private sector bank.

The investment aims to increase financing for climate-friendly projects and small businesses, helping accelerate the country’s economic recovery from the pandemic. Through this, FBL will be expanding its MSME and climate finance portfolios, which are keys to growth opportunities.

Federal Bank’s CEO and Managing Director, Shyam Srinivasan, shared that after the bank’s board approved the issuance of shares to the IFC group to an extent of 4.99% 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,” said Srinivasan.

Meanwhile, Roshika Singh, IFC’s acting country manager for India, commented that the move is in line with IFC’s strategy to support green growth by spurring investments, seizing the opportunities to help the country.

“The investment is also expected to create tens of thousands of jobs, with MSMEs gaining access to much-needed financing, which will also help ensure an inclusive recovery,” said Singh.

IFC has also announced that the investment marks the institution’s first in India aligned with the Greening Equity Approach, which will enable FBL to reduce its exposure to coal and increase its climate lending. 

With Federal Bank’s focus on ESG, IFC will also be consulting 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 be implementing an E&S technical advisory program. 

In addition, under the World Bank Group (WBG) Climate Change Action Plan, IFC will be putting climate action at the heart of its development work. The institution will also be 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 the climate.