Press Release Indian Renewable Energy …

1 1 CARE Ratings limited Press Release Indian Renewable Energy development agency limited January 03, 2018 Ratings Facilities Amount (Rs. crore) Rating1 Rating Action (i) Long term bonds (various outstanding) 2, (Rupees Two thousand two hundred seven crore and sixty five lakh only) CARE AAA(SO); Stable* [Triple A (Structured Obligation); Outlook: Stable] Reaffirmed (ii) Long-term Bonds: GoI Fully serviced Bonds* 4,000 (Rupees Four Thousand Crore only) CAREAAA; Stable [Triple A; Outlook: Stable] Reaffirmed (iii) Long term bonds (IREDA Green Bonds) 2,000 (Rupees two thousand crore only) CARE AA+; Positive (Double A Plus; Outlook: Positive) Revised from CARE AA+; Stable (Double A Plus; Outlook: Stable) (iv) Long term bonds (Proposed) 3265 (Rupees Three Thousand Two Hundred Sixty Five Crore Only) CARE AA+; Positive (Double A Plus.)

2 Outlook: Positive) Assigned Details of instruments/facilities in Annexure-1 Detailed Rationale& Key Rating Drivers The rating assigned to the instruments ( I in above table) primarily takes into account the credit enhancement of the bonds in the form of Letter of Comfort from Ministry of New and Renewable Energy (MNRE), Government of India (GoI) which states that MNRE will ensure that IREDA meets its repayment obligation on the above-mentioned bonds in a timely manner. The rating assigned to the long-term bonds ( 2 in above table) described as GoI fully serviced bonds factors in the obligation of the government to repay the principal and the interest amount by making suitable budgetary provisions as per the letter dated October 03, 2016 issued by Department of Economic Affairs, Ministry of Finance, GoI.

3 The rating also takes note of Memorandum of Understanding (MoU) signed between Ministry of New and Renewable Energy (MNRE) and IREDA for raising of GoI fully-serviced bonds through IREDA. The rating assigned to the long-term instruments ( III and IV in above table) continues to factor in 100% ownership of IREDA by Government of India (GoI) and the strategic role of IREDA in promoting Renewable Energy sector. The rating also derives strength from its established track record, diversified resources profile and comfortable liquidity, adequate capitalization levels, stable profitability and healthy growth in loan book with stable profitability parameters of the company. These rating strengths are, however, partially offset by the concentration of the loan book in the Renewable Energy sector and moderate asset quality; IREDA, being GoI owned financial institution, is exempted from applicability of RBI prudential norms pertaining to NPA recognition and provisioning.

4 Going forward, the continued support from GoI and the ability of the company to profitably grow its book while improving its asset quality and raise capital to fund the growth plans would be the key rating sensitivities. Outlook: Positive The outlook is Positive in view of the changing portfolio mix with higher share of incremental disbursements towards sectors which have exhibited good asset quality (Solar, Wind and Short term financing) and the impending IPO which will increase IREDA s net worth and strengthen the role of IREDA as the nodal agency for incentivizing the growth of Renewable sector in the country. The outlook may be revised to Stable if there is moderation in asset quality and capitalization levels. Detailed description of the key rating drivers 1 Complete definition of the ratings assigned are available at and other CARE publications 2 CARE Ratings limited Press Release Key Rating Strengths Ownership and support by GoI IREDA was set up by GoI under the administrative control of MNRE to promote, develop and extend financial assistance for Renewable Energy and Energy efficiency projects.

5 As of March 31, 2017, GoI holds 100% stake in IREDA. IREDA has a track record of receiving regular support from the government in the form of GoI Guarantees for its overseas bond issuances and borrowing from multilateral agencies. Under the categorization of Public Sector Enterprises, IREDA was upgraded from Schedule C to Schedule B by the Department of Public Enterprises, Ministry of Heavy Industries and Public Enterprises, GoI with effect from January 4, 2010. Further, IREDA has been awarded "Mini Ratna" (Category -I) status in 2015 by Ministry of New and Renewable Energy (MNRE). Strategic role in promoting Renewable Energy sector IREDA is a strategically important entity for GoI to promote Renewable Energy and Energy efficiency projects in India.

6 IREDA is promoted by MNRE (Ministry of New and Renewable Energy , GoI) as a financial institution dedicated to financing of Renewable Energy and Energy efficiency projects. IREDA provides a comprehensive range of financial products from project conceptualization to the post commissioning stage in the Renewable Energy sector. IREDA provides various fund and non-fund based facilities, including project finance, short terms loans, debt refinancing, performance guarantee and letters of comfort. IREDA has also been instrumental in implementing several schemes of the MNRE. IREDA enters into memorandum of understanding (MoU) with the MNRE on annual basis. Pursuant to the MoU, the annual targets are set with respect to loan sanctions, disbursements, profitability and other dynamic parameters.

7 Further, IREDA has also been a catalyst in encouraging other financial institutions to finance the Renewable Energy sector. In the Union Budget 2013 14, the Government of India announced allocation of funds from the National Clean Energy Fund (NCEF) to IREDA for the period of five years, for on lending to viable Renewable Energy projects by way of refinancing part of the loan at concessional rate of interest. Established risk management system and incremental measures taken to improve the asset quality IREDA is in lending operations for around 30 years. During the period the company has developed expertise in financing Renewable Energy and Energy efficiency projects. The company has an established risk management framework for approving and monitoring its portfolio.

8 The company has established in-house technical appraisal team which is looking after the technical viability of the prospective projects. IREDA has the policy of keeping the single borrower exposure at 20% of the net-worth and the group borrower exposure at 35% of the net-worth. Further, for the repayments, IREDA has the policy of creation of an escrow account TRA (Trust & Retention Account) in which all the cash flows related to the projects are deposited. IREDA has exhibited weaker asset quality profile in biomass, cogeneration and small hydro projects. In a bid to limit its exposure to these weaker segments IREDA has tightened its norms whereby limiting its maximum exposure to projects under these sectors at 50% of total project cost.

9 Healthy growth in loan portfolio with increasing share of sectors with good asset quality profile and stable profitability During FY15 FY17, the loan portfolio of IREDA had grown at a healthy CAGR of 24% with YoY growth of 31% in FY17. As on March 31, 2017, Wind Energy sector remains the largest segment for IREDA (33% of the overall lending portfolio) followed by solar thermal (25%) and short term loans (13% of the book) together constituting 71% of the overall portfolio which have aggregate NPAs of less than 1%while its exposure to weaker asset quality segments (aggregated NPAs of >19% as on Mar-17) is declining with small hydro Energy sector (14%), cogeneration (10%) and 5% remaining portfolio shared among bio mass power, Energy efficiency, waste Energy etc.

10 During FY17, the majority of the disbursements (92%) were in the wind Energy (39% of the overall disbursements during FY17) followed by short term funding for SEBs and highly rated entities (30%), solar Energy sector (23%).Increasing share of sectors, which have witnessed better asset quality, in IREDA s portfolio is likely to be positive for IREDA s asset quality profile. The total income registered growth of 26% y-o-y to Rs. 1482 crore ( Rs. 1,175 crore) in FY17. Interest income from loan financing increased by 33% y-o-y in FY17. The NIM increased to in FY17 from in FY16 due to increase in interest spread as the cost of borrowing declined in FY17 on account of lower incremental cost of borrowing of in 3 CARE Ratings limited Press Release FY17 as against incremental cost of borrowing of in FY16.