Particularly for loans, in-depth review on a borrower’s credit performance and the sector context, as part of the due diligence assessment, is vital for recognizing potential financial risks. Analytical measurements on financing risks (e.g., adequacy of capital ratio, contingent liabilities), risk allocation options, and risk management monitoring, for example, are key factors that enhance credit appraisal and help develop a well-structured financing scheme and related covenants. A thorough review of these assessments during implementation can help address any required covenant adjustment arising from market volatility or slowdown in the finance sector. The pressure from growing NPLs and IREDA’s exposure to foreign exchange risk resulted in noncompliance with NPL threshold covenant. However, IREDA fully disbursed the funds to creditors and achieved the project targets ahead of financial closure. Careful diagnostic credit appraisal, including parallel in-depth capacity risk assessment and sector analysis, helps ensure better management of risks.
Clean Energy Finance Investment Program (Tranche 1)