New Delhi Jul 23, 2020 (Thomson StreetEvents) — Edited Transcript of Power Finance Corporation Ltd earnings conference call or presentation Wednesday, June 24, 2020 at 10:30:00am GMT

* Anand A. Laddha

HDFC Asset Management Company Limited – Manager of Equities, Fund Manager of Foreign Securities, Senior Equity Analyst and Equity Dealer

Principal Asset Management Pvt. Ltd. – Fund Manager

DSP Investment Managers Pvt. Ltd. – Assistant VP of Investments & Equity Analyst for Financials

Daiwa Securities Co. Ltd., Research Division – Head of India Research

Ladies and gentlemen, good day, and welcome to the Q4 FY ’20 Earnings Conference Call of Power Finance Corporation Limited, hosted by Prabhudas Lilladher Private Limited. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Daptardar from Prabhudas Lilladher. Thank you, and over to you, ma’am.

Shweta Daptardar, Prabhudas Lilladher Pvt Ltd., Research Division – Research Analyst [2]

Thank you, Margaret. Welcome all, to the Power Finance Corporation Limited Q4 FY ’20 Earnings Call. We have with us today Mr. R.S. Dhillon, Chairman and Managing Director; Mr. N.B. Gupta, Director of Finance; Mr. P.K.Singh, Director, Commercial and Additional Charge Projects.

Without much ado, over to you, sir.

Good evening, everyone. Thank you for joining us on this conference call. I hope all of you are safe and well during this current COVID-19 situation.

First of all, I take this opportunity to introduce myself as the new CMD of PFC. I have taken over from Shri Rajiv Sharmaji after his superannuation in May recently. I look forward to fruitful interaction with you all in the future.

During this unprecedented situation, during the lockdown, a company-wide effort was made to continue our business as usual. I would like to start this call by taking — talking about the actions taken by PFC to manage the COVID situation. PFC, by quickly leveraging its technological capabilities, has been able to manage all its operations remotely throughout the lockdown period. Therefore, PFC’s business functions have largely remained unaffected due to the COVID-19 lockdown, and we have been able to smoothly conduct our business. This is evident from the fact that PFC has made a disbursement of INR 11,000 crores in the last week of March 20, itself. This, in fact, is more than the disbursement made during similar periods in March ’19.

We are ensuring business continuity by following work-from-home and running our offices with reduced staff. We are adhering to government guidelines on COVID-19, including social distancing. Though on lockdown there has been a general slowdown in the economy and consequently in the power sector also but, as of now, we have not seen any major impact on PFC business.

Now as the lockdown is easing, and as the situation evolves, we will be monitoring the situation to assess the impact on business operations.

In these tough times, the government and various regulators have been responding actively to various — by introducing various measures to keep the economy and the businesses functioning. To ease out the cash flow constraints, RBI has allowed lending institutions, including NBFCs to provide 6-month moratorium to its borrowers on all payments falling due between 1st of March 2020 and 31st August, 2020.

The Ministry of Power and MNRE have also come up with various measures to ease out the challenges being faced by various power sector entities. Some of them are reduction in late payment surcharge, waiver of fixed charges and interest rate charges ensuring must-run status to renewable energy generation facilities et cetera.

Further as you may all know the government has announced a INR 90,000 crores liquidity package for DISCOMs for which PFC and REC are the key implementing agencies. I am hopeful that this will significantly improve the cash flow situation in the sector.

PFC has been actively working on transmitting these benefits to its borrowers. I would like to highlight that to provide lending against PFC portion of INR 45,000 crores under the DISCOM standard package, PFC has already formulated a scheme for extending loans to DISCOMs. The loans will be extended for a maximum tenure of up to 10 years against the outstanding dues of DISCOM. Such lending will be on commercial terms and conditions and subject to it being backed by state government guarantee.

Considering lending is with state government guarantee, it will not have an adverse impact on PFC’s capital. Also in line with RBI guidelines PFC has provided the moratorium option to its borrowers. Till now moratorium has been extended to approximately 70% of the dues receivable by PFC.

On the liquidity standpoint, I would like to highlight that PFC’s borrowing has been continuing even during the lockdown. Further, during the current FY 2021 we have been successfully able to raise close to INR 29,000 crores from the domestic market majorly through a mix of bonds and term loans.

Also we have INR 10,000 crores of line of credit available with us from banks. Further we have around INR 9,500 crores term loan sanctioned from banks in pipeline. Thus going forward I am confident that we will be able to have sufficient liquidity levels to fund our business operations.

As a responsible corporate we have tried to do our part during COVID times and contributed INR 200 crores to the PM CARES Fund.

Now coming to the financial performance. In FY ’19/’20 we have interest income of INR 31,950 crores compared to INR 28,432 crores in FY ’18/’19. Our annual profits after tax is at INR 5,655 crores.

In this regard I think it is pertinent to mention the impact of deferred tax asset that is DTA remeasurement on profit. PFC has adopted to apply reduced corporate tax rates which was introduced in September 2019. Accordingly corporate tax rates have been reduced to 25.17% from 34.94% effective from 1st April, 2019. While this significant tax savings will accrue to PFC from now on, but this will also be accompanied by onetime impact of remeasurement of deferred tax assets at the lower tax rates. The impact of such DTA reassessment, remeasurement on profit is around INR 1,133 crores.

Accordingly, after excluding the DTA impact, the PAT for FY ’19/’20 would be INR 6,788 crores compared to the reported tax — reported PAT of INR 5,655 crores. On our financial indicators in FY ’19/’20, our annual yield is at 10.63% and has remained within the stable range compared to the previous year. PFC’s cost of funds has also been consistently reducing. In FY ’20, the cost of funds has come down by almost 16 bps to 7.79% from 7.95% in FY ’19.

Further, with consistent level of yield and reducing cost, the spread has also increased by 15 bps during a span of 1 year from 2.67% in FY ’19 to 2.83% in FY ’20. I believe that going forward, we would be able to maintain our financial indicators within this range.

Another thing I would like to give an update on is PFC’s CRAR. The CRAR for FY ’19/’20 is 16.96% compared to 17.09% in FY ’18/’19. This sudden dip in CRAR level is due to regulatory change. The key reason for depressed CRAR is the recent change introduced by RBI on 13th March 2020 for exclusion of any net unrealized gains on fair valuation of financial instruments from calculation of own funds under CRAR, whereas all such net losses should be considered.

For FY ’19/’20, after including fair well — net fair valuation gains, the CRAR would have been up by around 40 bps. Overall, despite various challenges during the year, PFC has been able to deliver a substantial financial performance this year.

Now coming to the asset quality. Over the years, we have been consistently working on resolution of NPA assets and building of sufficient provision buffer. In 3 years, PFC net NPA levels have come down to 3.8% at present, from 7.39% in FY ’17/’18. This is the lowest net NPA ratio in these 3 years.

Another positive development this quarter is that we have reached resolution in RS India loan of INR 224 crores, which is a 41-megawatt wind project. The LOI has been issued to the successful bidder and definitive agreement for resolution is under signing. We already have maintained sufficient provisioning against this project.

Coming now to the resolution status of other 28 projects, currently 16 projects of INR 16,138 crores have been resolved through NCLT, and the remaining 12 projects of INR 11,511 crores are being resolved outside NCLT. Further, out of these projects, I would like to give an update on the 6 projects, which were near to resolution prior to COVID lockdown and details of which have been shared in the last earnings call for quarter 3.

The 3 projects worth INR 6,578 crores, which have been resolved outside NCLT, that is R.K.M Powergen, INR 5,207 crores; India Power Haldia, INR 959 crores; and Essar Transmission, INR 412 crores. The resolution has been approved by the lenders.

In 3 projects of INR 2,518 crores, which have been resolved — which are being resolved through NCLT, that is Ind-Barath, Utkal, INR 1,368 crores; and Jhabua Power, INR 764 crores; and also Jal Power, INR 386 crores, successful bidders in NCLT have been identified or is under finalization.

Resolution of these projects — of these 6 projects is expected to improve the NPA levels going forward. Although due to COVID situation, the resolution process has slowed down a bit, but I can assure you, we are making all possible efforts to resolve them at the earliest. We are hopeful that we would be able to reach resolution in some of the above-mentioned projects in the coming months.

Moving on to the borrowing portfolio front. In FY 2021, as of now, as per the approved borrowing program, INR 90,000 crores of fund mobilization is envisaged from domestic and international markets. So far, PFC has raised close to INR 29,000 crores from domestic market since April 2020. In addition, INR 9,500 crores term loan sanctions from banks are currently in pipeline, further close to 50% of the annual debt servicing obligations have already been met.

Also, in this regard to raising, I would like to mention that we are actively focusing on increasing our funding under 54EC coupon capital bonds, which have a low coupon of 5.75%. In just 3 years, 54EC raising has more than tripled from INR 292 crores in FY ’17/’18 to INR 1,134 crores in FY ’19/’20.

Further, I would like to highlight that PFC, over the past few years has been strategically focusing on balancing its assets and liabilities portfolio by extending loans for shorter duration and focusing on borrowing for long term. As a result, the gap between weighted average maturity of assets and liability has reduced significantly from 2.39 years in FY ’17/’18 to 1.4 years in FY ’19/’20.

On the international raising front, PFC in FY ’19/’20 has raised USD 3.05 million from the foreign markets. Thus, with our dedicated focus on diversification, the foreign currency portfolio now comprise 16% of our borrowing portfolio. Further, considering the risk arising out of the increasing foreign currency portfolio, PFC is also actively focusing on hedging its foreign borrowings portfolio. PFC has already had 66% of the exchange risk cost portfolio with residual maturity of up to 5 years. Thus, we are consistently focusing on protecting our balance sheet from such foreign currency fluctuations.

Now lastly, on the way forward, given the dynamic COVID-19 situation, we would be able to share a clearer picture of our FY 2021 plan as the situation evolves. However, considering the present situation, PFC is expecting to maintain its asset — loan asset growth at similar levels as last year. Accordingly, to sustain its growth level, PFC is expecting to cross last year’s disbursement levels during FY 2021. Also, considering that new lending opportunities would be limited in view of the COVID-19 situation, the INR 90,000 crores discount credit package is a good business opportunity for PFC to maintain its loan asset growth. In addition to this, our focus would continue to be on renewable business.

Now we are open to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of [Rahul Marathe] from ICICI Prudential Pension Fund.

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Unidentified Analyst, [2]

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Sir you mentioned that we have a borrowing plan — approved plan of INR 90,000 crores. So does this include the INR 45,000 crores of DISCOM package?

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Unidentified Company Representative, [3]

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See this INR 90,000 crores is the original plan. We have to borrow slightly more on the basis of this liquidity package, which has been announced by the Government of India and some sort of moratorium also.

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Unidentified Analyst, [4]

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And how would it be — the mix would be in terms of bonds and bank borrowings?

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Unidentified Company Representative, [5]

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See it depends on the market conditions. See, we just monitor all the instruments available and where we find it is cheaper for me, we just mobilize it. But so far, the maximum amount has been mobilized through bonds only.

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Unidentified Analyst, [6]

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So the INR 29,000 crores, which we raised in Q1 was through bonds?

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Unidentified Company Representative, [7]

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Not 100%. Around 80% is through bonds.

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Operator [8]

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The next question is from the line of Dhaval Gada from DSP Investment Managers.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. – Assistant VP of Investments & Equity Analyst for Financials [9]

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I just had a couple of questions. First, on Slide 17, you’ve given an update on the resolution plan. I just wanted to say, during the quarter, have we seen any upgrade or any recovery?

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Unidentified Company Representative, [10]

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See in this quarter, you know that RBI has declared after 28th February, we have to keep all the senior schemes. So we can’t change that status of loan after 28th of February. So there is no change after 28th February, whatever the senior there on 28th it is same.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. – Assistant VP of Investments & Equity Analyst for Financials [11]

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So no upgrade or no recovery has happened before 28th February during the quarter, between January…

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Unidentified Company Representative, [12]

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Last year, we have resolved 2 or 3 cases. One was RattanIndia. Second was GMR Chhattisgarh. And third one was Konkan LNG Pvt Ltd. These 3 projects we settled last year. And there were a few cases, we were in the verge of settlement, but due to this COVID situation, it could not be done, which we expect that after some time should be possible.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. – Assistant VP of Investments & Equity Analyst for Financials [13]

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Understood. Sir, the second question that I had was if you could just breakdown the loan composition that is given on Slide 19, on the generation side of the INR 2 lakh crore conventional generation, how much is the government and how much is private? And similarly, if you can break for the renewable energy as well, INR 19,411 crores, how much is government and private? That would be quite useful.

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Unidentified Company Representative, [14]

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As we mentioned in one of the slides, out of total loan book, around 83% to the government and 17% to the private sector.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. – Assistant VP of Investments & Equity Analyst for Financials [15]

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Right. And that mix would be true for even this, the INR 2 lakh crore also would be 83%, 17%?

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Unidentified Company Representative, [16]

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In Renewable most of it is in the private sector.

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Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [17]

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In Renewable most of the funding is to private and generation, it is a mix.

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Unidentified Company Representative, [18]

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Majority to the government sector only.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. – Assistant VP of Investments & Equity Analyst for Financials [19]

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Okay. Sir, any approximations on INR 2 lakh crore generation, approximately how much would be government?

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Unidentified Company Representative, [20]

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Yes. See, as we mentioned, the renewable is mainly in the private sector. When we talk about 83% overall, we may say 86%, 87% to the government, the rest to the private sectors.

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Operator [21]

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The next question is from the line of Hardik Shah from SBI Mutual Fund.

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Hardik Shah, [22]

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Just 2 questions. What is the run rate of collections during these 3, 4 months?

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Unidentified Company Representative, [23]

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See, as we said that 70% had opted for moratorium, so the 30% we have realized in cash and to rest we have given the moratorium.

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Hardik Shah, [24]

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But aren’t anybody in the moratorium paying anything? Or…

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Unidentified Company Representative, [25]

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See, either they will opt or they will pay. We said 30% have paid and 70% opted for the moratorium.

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Hardik Shah, [26]

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Okay. Understood. And secondly, sir, any update or progress on the relaxation of group norms for invoice?

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Unidentified Company Representative, [27]

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We have only taken that up with the RBI, and we are waiting — we are very hopeful that we’ll get some positive from RBI.

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Hardik Shah, [28]

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Okay. And lastly, one question. So over the years now, thermal CapEx is expected to go down. So which are the other growth opportunities other than the DISCOM segment, which you would be looking to lend to?

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Unidentified Company Representative, [29]

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See, as we have mentioned that already the renewable is good at present we are getting renewables. Lot of refinancing proposals we are getting, of course, DISCOMs and this transmission is there. Then we are diversifying, like Smart City and all this, we have been diversifying. So I don’t think there’s any issue as for the disbursement and our loan growth is concerned.

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Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [30]

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The state generating companies and also other private in thermal area, they have the revised environmental norms. So they have to install FGD, et cetera. So that business we will be looking at and refinancing of commissioned assets. And then with respect to forward and backward linkage, we are looking at coal mining, then energy storage, and also charging infrastructure, the sewage treatment plants, and the waste-to-energy also.

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Operator [31]

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The next question is from the line of [Mahesh Shah from Edelweiss].

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Unidentified Analyst, [32]

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You mentioned that you would have some increase in your borrowing program from FY ’21. Can you just give color as to how much that would be out of the (inaudible) of INR 90,000 crores?

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Unidentified Company Representative, [33]

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See we had a program of INR 90,000 crores, even though the government has announced around INR 45,000 crores to DISCOMs under special package. But we feel that our routine disbursement, it may slow down due to this COVID situation because of construction progress in different sites. So last year, we made a disbursement of around INR 67,000 crores. Definitely it will be more than last time. But exact figure, it is very difficult to say right now because you know that COVID is happening and how it will move ahead, is very difficult to say right now. But we are expecting that, at least, we’ll have the same growth what we had last time and better than that one.

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Unidentified Analyst, [34]

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Okay. And in terms of, like when will you decide what the borrowing program would be like? And how much maturities do you have during this year?

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Unidentified Company Representative, [35]

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As we mentioned that, generally, my maturity was front-loaded. And we have already — 50% is already mature. So that’s why, what we have borrowed INR 29,000 crores plus INR 9,000 crores in pipeline, major chunk has gone for the servicing only.

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Unidentified Analyst, [36]

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Okay. Second, coming to your CRAR ratio. So given that these state guarantee should be there on the new loans, will that have any risk weight, like how does the risk weight work during that [adjustments]?

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Unidentified Company Representative, [37]

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This [INR 40,000 crores] will be granted by the government. So it will carry a risk weighting of 20% only.

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Operator [38]

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The next question is from the line of [Nirmal Gandhi from SBI Mutual Fund].

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Unidentified Analyst, [39]

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Sir, I wanted to ask 2 questions. One is, whether we have a separate NPA policy for the loans we give to government companies? Or we follow the same policy for all the disbursements?

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Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [40]

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For both private and state sector we have the same NPA policy.

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Unidentified Analyst, [41]

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So even if state-owned DISCOM has not payed money within the 90-day period, it is classified as NPA? And accordingly, provisions are being made?

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Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [42]

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Right.

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Unidentified Company Representative, [43]

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But none of the states, they have crossed this 90 days so far. So all my state governments, they are, either in stage 1 or 2.

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Unidentified Analyst, [44]

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Okay. So second thing I wanted to ask you is that, say there will be many of the companies who will be borrowing every year from you. The same companies, it is possible that they have borrowed in ’17/’18; ’18/’19; and ’19/’20. So how do we ensure that they are not borrowing money just for repayment of our loans?

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Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [45]

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No, we are making disbursement. We are sanctioning loans for a particular project. So only after there is implementation in that project, we are disbursing funds.

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Unidentified Company Representative, [46]

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See, our main funding is for project funding, project asset creation. So there’s no question of duplicacy of the payment or anything.

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Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [47]

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And sometimes we are making direct payment to supplier also on the request of our borrowers and which are certified by them.

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Operator [48]

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The next question is from the line of Ishank Kumar from UBS Securities India Private Limited.

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Ishank Kumar, UBS Investment Bank, Research Division – Associate Director and Analyst [49]

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The first question I want to ask is on spread side. We saw spread improvement this quarter because cost of funds came down. But given that interest rates are coming down and banks are cutting rates, what is the outlook on spread going forward? In the past, you have seen some margin pressure in a declining interest rate scenario. So can you comment on that?

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Unidentified Company Representative, [50]

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Yes. You know that there’s a declining scenario right now, and that we’re also getting a benefit of the lower rate of interest. But, of course, then we have to look at the overall scenario. If this continues, then we may have to pass on to the states also, my borrowers also to some extent.

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Ishank Kumar, UBS Investment Bank, Research Division – Associate Director and Analyst [51]

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Right. But sir, so in the…

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Unidentified Company Representative, [52]

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I’m hopeful that this — whatever the spread we are earning right now, we will continue to earn that, around to that only.

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Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [53]

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We also had discussions with Ministry of Finance for creating extra windows for our — for adding up to the liquidity, and we have requested for the consideration of repo-linked borrowing facilities and also long-term facilities with respect to LIC, EPFO, et cetera, we submitted to the Ministry of Finance for this.

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Ishank Kumar, UBS Investment Bank, Research Division – Associate Director and Analyst [54]

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But given the fact that almost like INR 45,000 crores we will disburse this year at lower spreads, do you have any spread target in mind for FY ’21? Or any view there?

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Unidentified Company Representative, [55]

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See this INR 45,000 crores, so far, for 10 years, we have decided a rate of interest of 9.50%. And considering the market scenario today, you can just work out that what is the spread we are earning on that.

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Ishank Kumar, UBS Investment Bank, Research Division – Associate Director and Analyst [56]

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Okay. Okay. Understood. Understood. Understood. Second question, sir, was on asset quality. So we have seen some increase in gross NPA this quarter of around slightly more than INR 400 crores. So can you explain that, please?

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Unidentified Company Representative, [57]

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See, if we talk about this quarter, it’s a very small increase of state fee, that is INR 107 crores only. This is due to the deferred payment granting which we have given in one of the projects and that on materialization we have made a payment of around INR 100 crores. That is the only case. There’s no addition or nothing.

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Operator [58]

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(Operator Instructions) The next question is from the line of Anand Laddha from HDFC Mutual Fund.

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Anand A. Laddha, HDFC Asset Management Company Limited – Manager of Equities, Fund Manager of Foreign Securities, Senior Equity Analyst and Equity Dealer [59]

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Sir, just wanted to understand, you indicated that there is a change in RBI norms for calculating the capital adequacy. If can you highlight what is the change? And what is the impact of the same on our [T-earned] capital?

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Unidentified Company Representative, [60]

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See the derivatives that mark-to-market, in which we have fair valuation, which we used to take that was a part of my net worth. Okay. Now they said that this is not to be considered as a part of net worth. This has impacted around INR 950 crores in my net worth, and impacted that ratio around 40 basis points. Otherwise, this would have been 17.35% compared to 17.05% last year.

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Anand A. Laddha, HDFC Asset Management Company Limited – Manager of Equities, Fund Manager of Foreign Securities, Senior Equity Analyst and Equity Dealer [61]

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Okay. Okay. Okay. Sir, this INR 950 crores of fair value change, which is impacting your net worth, is it the mark-to-market loss on currency? Or is it the mark-to-market loss on the hedge position we have taken?

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Unidentified Company Representative, [62]

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It is only a hedge position.

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Unidentified Company Representative, [63]

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Market gain.

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Unidentified Company Representative, [64]

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It is a gain. It’s not a loss. It is a gain. And this is on that derivatives, which we have taken.

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Unidentified Company Representative, [65]

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Hedge position.

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Unidentified Company Representative, [66]

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Hedge position.

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Anand A. Laddha, HDFC Asset Management Company Limited – Manager of Equities, Fund Manager of Foreign Securities, Senior Equity Analyst and Equity Dealer [67]

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Okay. So earlier, this used to be part of our network. Now it is not part of our network?

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Unidentified Company Representative, [68]

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Yes, yes.

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Anand A. Laddha, HDFC Asset Management Company Limited – Manager of Equities, Fund Manager of Foreign Securities, Senior Equity Analyst and Equity Dealer [69]

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Okay. Got it. And sir, we indicated in the presentation some INR 9,000 crore of NPA asset are likely to get resolved in coming quarters. If you can give some color, sir, how much is the provision we have made on this exposure? Is there any reversal of provision can happen post resolution of this asset?

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Unidentified Company Representative, [70]

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See, as we mentioned that this is in the final stages, and we have made sufficient provisions and more or less because when we workout ECL, it is on the basis of expected loss. So we have made a more or less provision, which is required to settle all this loan.

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Anand A. Laddha, HDFC Asset Management Company Limited – Manager of Equities, Fund Manager of Foreign Securities, Senior Equity Analyst and Equity Dealer [71]

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Okay. So there is no expectation of any reversal of provision as this asset gets resolved?

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Unidentified Company Representative, [72]

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Yes.

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Anand A. Laddha, HDFC Asset Management Company Limited – Manager of Equities, Fund Manager of Foreign Securities, Senior Equity Analyst and Equity Dealer [73]

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Okay. Okay. And sir, currently, is this asset — is this INR 9,000 crores of asset paying any interest to us?

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Unidentified Company Representative, [74]

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No, there’s no running interest.

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Anand A. Laddha, HDFC Asset Management Company Limited – Manager of Equities, Fund Manager of Foreign Securities, Senior Equity Analyst and Equity Dealer [75]

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Okay. So post — so assuming they get resolved at 50% NCLT, so on INR 4,500 crores, we will start earning interest?

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Unidentified Company Representative, [76]

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Definitely, definitely.

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Anand A. Laddha, HDFC Asset Management Company Limited – Manager of Equities, Fund Manager of Foreign Securities, Senior Equity Analyst and Equity Dealer [77]

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Okay. And sir, there are 16 more assets we indicated which are into different stages of NCLT. If you can give some color, like where they are? And I also understand that Rattan Amravati has got resolved. If you can give some color on the status of RattanIndia Nasik plant?

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Unidentified Company Representative, [78]

——————————————————————————–

RattanIndia is already resolved.

——————————————————————————–

Unidentified Company Representative, [79]

——————————————————————————–

(foreign language)

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [80]

——————————————————————————–

RattanIndia Nasik, there was a lender meet on 17 June. And basically, it was with respect to operationalizing the PPA, which was there from MP — from Maharashtra of 507 megawatts. So that is — that is to be revived, and we have to — as the banks have to provide working capital for running the plant and for giving the PG for the — this PPA to be signed. PPA is yet to be signed.

——————————————————————————–

Anand A. Laddha, HDFC Asset Management Company Limited – Manager of Equities, Fund Manager of Foreign Securities, Senior Equity Analyst and Equity Dealer [81]

——————————————————————————–

Okay. So post this resolution, this — the plan is likely to get — this stress is likely to get resolved, sir?

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [82]

——————————————————————————–

So we see that if the PPA is revived, then there is chances of the project — the 2 units running and then the way forward will be that for other PPAs will also be available, and then the project will be able to revive. But unless this PPA is revived and the working capital is not given by other vendors, if we — there will be a challenge.

——————————————————————————–

Operator [83]

——————————————————————————–

(Operator Instructions) The next question is from the line of Kunal Shah from ICICI Securities.

——————————————————————————–

Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst [84]

——————————————————————————–

Yes. Sir, 2 questions. Firstly, in terms of the incremental watchlist which, if any, we have due to COVID disruption, wherein maybe there are no PPA issues, but maybe because of some liquidity or nonpayment of DISCOM, we are closely monitoring them?

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [85]

——————————————————————————–

So under this INR 90,000 crores package, the DISCOM will get loan from us, and they will discharge liabilities with respect to the renewable energy plants and also for IPPs, and with respect to the central power generating companies and transcos also. So this will help in paying for the dues — the pending dues for the generators.

——————————————————————————–

Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst [86]

——————————————————————————–

Okay. And even this moratorium would come down once we release this — the transitional finance?

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [87]

——————————————————————————–

It’s moratorium…

——————————————————————————–

Unidentified Company Representative, [88]

——————————————————————————–

No. I don’t think so. That is for payment of their dues. So this will not bring down that quarter payment.

——————————————————————————–

Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst [89]

——————————————————————————–

Sorry, it will not?

——————————————————————————–

Unidentified Company Representative, [90]

——————————————————————————–

It will not bring because that moratorium will continue, and they are not going to pay that moratorium. Whatever the amount they have taken a moratorium, they’re not going to pay. I mean, the moratorium will continue.

——————————————————————————–

Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst [91]

——————————————————————————–

Okay. And what is the status on CNR Energy?

——————————————————————————–

Unidentified Company Representative, [92]

——————————————————————————–

CNR, there is only one unit. Actually, both the units were not running. Now one of the units has come online. So — and there is a payment which is to be made from U.P. against the project.

——————————————————————————–

Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst [93]

——————————————————————————–

But it is standard for us?

——————————————————————————–

Unidentified Company Representative, [94]

——————————————————————————–

It is standard — Stage II. It is Stage II.

——————————————————————————–

Unidentified Company Representative, [95]

——————————————————————————–

It is Stage II.

——————————————————————————–

Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst [96]

——————————————————————————–

Okay. It is in Stage II for us. And we have how much of exposure?

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [97]

——————————————————————————–

We have 1,146.

——————————————————————————–

Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst [98]

——————————————————————————–

Okay, 1,146. Okay. And lastly, in terms of — I don’t know if you’re sharing the opening remarks, but what is the status of this transitional finance? Sir, how much has been sanctioned? What can we expect in terms of disbursement in the next 3 months? I just missed those opening comments, yes.

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [99]

——————————————————————————–

So we have received proposals about INR 14,000 crores, and we are processing that and different DISCOMs have shown interest, and around INR 69,000 crores interest has been shown.

——————————————————————————–

Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst [100]

——————————————————————————–

So this INR 14,000 crores is our share or put together both all tranches and both PFC and REC?

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [101]

——————————————————————————–

This is the total amount, including PFC, REC, tranche 1, tranche 2, both.

——————————————————————————–

Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst [102]

——————————————————————————–

Okay. So we have INR 14,000 crores proposals?

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [103]

——————————————————————————–

Right.

——————————————————————————–

Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst [104]

——————————————————————————–

And 16,000 — INR 69,000 crores is the interest?

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [105]

——————————————————————————–

Including this INR 14,000 crores.

——————————————————————————–

Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst [106]

——————————————————————————–

Including this INR 14,000 crores. Okay.

——————————————————————————–

Operator [107]

——————————————————————————–

The next question is from the line of Anirvan Sarkar from Principal Asset Management.

——————————————————————————–

Anirvan Sarkar, Principal Asset Management Pvt. Ltd. – Fund Manager [108]

——————————————————————————–

Just one question. You mentioned that 70% has opted for moratorium. That number of customers or percentage of total book?

——————————————————————————–

Unidentified Company Representative, [109]

——————————————————————————–

Amount due.

——————————————————————————–

Unidentified Company Representative, [110]

——————————————————————————–

It is amount due. Amount due.

——————————————————————————–

Anirvan Sarkar, Principal Asset Management Pvt. Ltd. – Fund Manager [111]

——————————————————————————–

Okay. Amount due. Second question is, sir, what’s in your NPA recognition policy, I mean, is it the same as — is it on 90 DPD? Or what is the…

——————————————————————————–

Unidentified Company Representative, [112]

——————————————————————————–

After 90 days, we classify as Stage III, and we don’t account for any income on Stage III assets.

——————————————————————————–

Anirvan Sarkar, Principal Asset Management Pvt. Ltd. – Fund Manager [113]

——————————————————————————–

Okay. So this 7.39, I think you mentioned your NPA is. So that’s the total 90 DPD book?

——————————————————————————–

Unidentified Company Representative, [114]

——————————————————————————–

Yes, sir. Yes.

——————————————————————————–

Operator [115]

——————————————————————————–

The next question is from the line of Hiren Shah from Invesco Asset Management.

——————————————————————————–

Hiren Shah, [116]

——————————————————————————–

I have 2 questions. The first one was, can you just give some color on the movement in the Stage II bucket?

And the second question was on the funding side. So you highlighted that the borrowing program, in terms of what you’re going to borrow from, like bank, et cetera, is largely dependent upon the market conditions. To what extent, like do you have restrictions in terms of the various buckets, like, be it like foreign currency or domestic or even within domestic between bonds, loans, et cetera? That will be useful.

——————————————————————————–

Unidentified Company Representative, [117]

——————————————————————————–

See. As far as the foreign currency is concerned, there is a limit prescribed by RBI, that is under automatic use. Beyond that, we have to go to RBI and take a specific approval. But as far as internal mechanism is concerned, there is no limit and the way — just we are seeking the cheapest borrowing available to us. And wherever we get the cheaper, we just borrow it, maybe domestic bonds, term loan, foreign currency.

——————————————————————————–

Hiren Shah, [118]

——————————————————————————–

Okay. I’m sorry, the other question was on the Stage II.

——————————————————————————–

Unidentified Company Representative, [119]

——————————————————————————–

Stage II. See, Stage II We have around INR 32,000 crores in Stage II and the major part is state government because 2 states due to this COVID, they could not make a payment to us, and that has shifted to Stage II. But after that March, we have got a major — 90% payment we have received, and this will be out from Stage II in the next quarter.

——————————————————————————–

Hiren Shah, [120]

——————————————————————————–

Okay. And if you exclude that, has there been anything from the private side, which has increased in Stage II?

——————————————————————————–

Unidentified Company Representative, [121]

——————————————————————————–

See, private, there is only 2 or 3 parties. One we have already mentioned, TRM. And there is one — I don’t know whether I should name that or not, there is one Metra — these are small amount, which has — because Andhra is not making payment to them, which has come to a category of Stage II, but we are sure that once we get — we release the payment to DISCOMs, again, this will be out from Stage II.

——————————————————————————–

Hiren Shah, [122]

——————————————————————————–

And so just to confirm, like if you exclude those 2 state government loans, then there hasn’t been much movement in Stage II, basically?

——————————————————————————–

Unidentified Company Representative, [123]

——————————————————————————–

Yes. Because there is one more private sector, which I can’t disclose due to that court restrictions that has also moved to Stage II, will be around INR 1,000 crores, okay? Rest of this — this is not a private sector, which is Stage II.

——————————————————————————–

Operator [124]

——————————————————————————–

(Operator Instructions) The next question is from the line of Punit Srivastava from Daiwa Capital Markets.

——————————————————————————–

Punit Srivastava, Daiwa Securities Co. Ltd., Research Division – Head of India Research [125]

——————————————————————————–

Sir, regarding the moratorium, you said that 70% of the dues are under moratorium. Sir, will it be possible to quantify on a loan book basis, how much it will be?

——————————————————————————–

Unidentified Company Representative, [126]

——————————————————————————–

Because we have a loan book of INR 3.5 lakh crores and the moratorium we have given to around INR 20,000 crores only. So you can work out maybe around 8% — 7%, 8%.

——————————————————————————–

Punit Srivastava, Daiwa Securities Co. Ltd., Research Division – Head of India Research [127]

——————————————————————————–

So on a cash — on a dues basis it is 70%, but on a loan basis it will be only INR 20,000 crores because others might be in various stage of funding, that’s why, maybe?

——————————————————————————–

Unidentified Company Representative, [128]

——————————————————————————–

Yes. Yes. Yes.

——————————————————————————–

Punit Srivastava, Daiwa Securities Co. Ltd., Research Division – Head of India Research [129]

——————————————————————————–

And sir, this INR 20,000 crores is mostly for DISCOMs?

——————————————————————————–

Unidentified Company Representative, [130]

——————————————————————————–

It is a mix, no? I can’t say DISCOMs. It is maybe some generating companies also, private sector also. So I don’t have right now the breakup of that mix up.

——————————————————————————–

Punit Srivastava, Daiwa Securities Co. Ltd., Research Division – Head of India Research [131]

——————————————————————————–

Right. And sir, would you require any kind of funding for this moratorium, especially if they go up going ahead? Are you saying that there is no need for any additional funding in terms of asset liability requirement?

——————————————————————————–

Unidentified Company Representative, [132]

——————————————————————————–

See. As far as liabilities are concerned, in RBI, they have opened on LTRO scheme, no? So we got a good amount in LTRO, which was open only for this moratorium. And otherwise also, there’s enough liquid in the market, liquidity — enough liquidity in the market. So we don’t foresee that any problem in raising the funds.

——————————————————————————–

Punit Srivastava, Daiwa Securities Co. Ltd., Research Division – Head of India Research [133]

——————————————————————————–

Right, sir. And sir, this provisioning amount during the quarter, can you give a breakup, like was this largely because of the aging of the NPAs?

——————————————————————————–

Unidentified Company Representative, [134]

——————————————————————————–

Aging?

——————————————————————————–

Punit Srivastava, Daiwa Securities Co. Ltd., Research Division – Head of India Research [135]

——————————————————————————–

I mean, in terms of the tenure of the NPLs rising, so that’s why you have done higher provisioning during the quarter because there was no NPLs.

——————————————————————————–

Unidentified Company Representative, [136]

——————————————————————————–

We work out this provisioning on the basis of ECL model, not on the basis of time frame.

——————————————————————————–

Punit Srivastava, Daiwa Securities Co. Ltd., Research Division – Head of India Research [137]

——————————————————————————–

Right. Okay. And sir, can you quantify the total loans guaranteed by the state government in your portfolio?

——————————————————————————–

Unidentified Company Representative, [138]

——————————————————————————–

State government, it is around INR 2,87,000 crores.

——————————————————————————–

Punit Srivastava, Daiwa Securities Co. Ltd., Research Division – Head of India Research [139]

——————————————————————————–

I mean, sir, the state government guaranteed loans.

——————————————————————————–

Unidentified Company Representative, [140]

——————————————————————————–

See total government is INR 2,87,000 crores, and you can consider roughly 20%, 22% is guaranteed by the government of India. So the government of states, state governments.

——————————————————————————–

Operator [141]

——————————————————————————–

The next question is from the line of Mahrukh Adajania from Elara.

——————————————————————————–

Mahrukh Adajania, [142]

——————————————————————————–

Sir, for the Lanco Group projects, what is the status? Has any of them being resolved?

——————————————————————————–

Unidentified Company Representative, [143]

——————————————————————————–

No. It is in NCLT at the moment.

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [144]

——————————————————————————–

This was admitted. We have one project — exposure to one project of Lanco, that is Amarkantak. And that was admitted in NCLT in September 2019, and the RFP has been issued and the resolution plan has been requested still 15th of July. We have received the UI from 11 interested parties.

——————————————————————————–

Mahrukh Adajania, [145]

——————————————————————————–

Got it. And sir, just one more follow-up question, that in the Jaiprakash Group, what are the exposures that you have? And what is the status?

——————————————————————————–

Unidentified Company Representative, [146]

——————————————————————————–

We don’t have any exposure in Jaiprakash Group.

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Operator [147]

——————————————————————————–

The next question is from the line of Jayaprakash Bysani from HSBC.

——————————————————————————–

Jayaprakash Bysani, [148]

——————————————————————————–

I have 2 questions. What would be the target for dollar bond raising for this year? Last year, you said $3 billion was raised?

And second one is, are there any Stage III renewable assets currently in the NPLs?

——————————————————————————–

Unidentified Company Representative, [149]

——————————————————————————–

It is very small amount of INR 10 crores to INR 15 crores only that is in the Stage III, but mainly is on with the private generation side only, generation, transmission side only. And there’s no renewable, only one — but for one project.

——————————————————————————–

Unidentified Company Representative, [150]

——————————————————————————–

One project only.

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [151]

——————————————————————————–

And that RF India, we were able to — that was a renewable project that we were able to resolve.

——————————————————————————–

Jayaprakash Bysani, [152]

——————————————————————————–

And any targets for the dollar bonds for this year?

——————————————————————————–

Unidentified Company Representative, [153]

——————————————————————————–

See, we are looking — we are just watching the market and at approval time, definitely we’ll launch that — this international market, NTM.

——————————————————————————–

Operator [154]

——————————————————————————–

The next question is from the line of Punit Srivastava from Daiwa Capital Markets.

——————————————————————————–

Punit Srivastava, Daiwa Securities Co. Ltd., Research Division – Head of India Research [155]

——————————————————————————–

Sir, I have a question with the new CMD, which we will be interested to know like what kind of opportunities you are seeing as a new CMD here in the organization? And what kind of challenges you see going ahead, a very broad perspective, if you can give, please?

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [156]

——————————————————————————–

This is — PFC is a big organization. And we would like to — I would like to continue with the same policies as has been done earlier. So — and with respect to the growth, as I had already indicated, we are looking for new opportunities with respect to charging infrastructure and then refinancing new projects, getting good borrowers in our portfolio, and environmental guidelines have to be implemented. So with respect to that, we would like to fund these FCDs and other environmental things. And we’re also looking for the funding of e-vehicles. So these are the new opportunities and waste-to-energy also we would like to do. And with respect to solar manufacturing also, we would — we have received some applications, and we are seeing whether we can fund these projects.

——————————————————————————–

Punit Srivastava, Daiwa Securities Co. Ltd., Research Division – Head of India Research [157]

——————————————————————————–

Okay, sir. And sir, just one more question if I can chip in. Sir, going ahead, because of this COVID-related impact, is it possible for you to give some guidance on the provisions in FY ’21 or the credit cost, how do you see that — given that possibly the [haircuts] going ahead, do you think will be higher than what was anticipated? And in that context, do you see a higher credit cost this year?

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [158]

——————————————————————————–

So this NPA resolution has been set — asset resolution has been delayed. But going forward, we see that we should be able to get — whatever we were getting earlier, we should be able to get going forward also.

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Unidentified Company Representative, [159]

——————————————————————————–

And I would like to add here is that we are following ECL methodologies, that is expected guide laws and that we review on a quarterly basis. Whenever we make quarterly accounts. So any expected loss we provide in the account registered in that quarter.

——————————————————————————–

Punit Srivastava, Daiwa Securities Co. Ltd., Research Division – Head of India Research [160]

——————————————————————————–

And sir, one last question, if I may ask. Sir, this — again, this question on merger with REC, any update is there? And irrespective of the merger, do you — what kind of opportunities you see, sir, going ahead along with REC, if anything new to…

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [161]

——————————————————————————–

So with respect to mergers, we had submitted a report by Deloitte to the Ministry of Power, and that is being looked at by them. And for making the synergies visible, we are interacting with REC to have common policies and credit — whatever credit policies we have to align them. With respect to rating also, we have indicated to REC also that we should have the same rating methodology with respect to the state sector. So that things, we are taking forward.

——————————————————————————–

Operator [162]

——————————————————————————–

The next question is from the line of Prakhar Agarwal from Edelweiss.

(Operator Instructions) The next question is from the line of Sundeep Allamraju from L&T Mutual Fund.

——————————————————————————–

Sundeep Allamraju, [163]

——————————————————————————–

My query was also on this merger status. So while you get some insights on that, specifically, what time lines are you looking at? What would government’s stake be? Because somewhere, I had read that you’re looking at Q1 FY ’21 as the time line. So there any challenges that you foresee? Just a bit more color on that, sir.

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [164]

——————————————————————————–

So we cannot tell any time frame as of now with respect to the merger because it is the government of India decision.

——————————————————————————–

Sundeep Allamraju, [165]

——————————————————————————–

Okay. Okay. But just in terms of progress, anything that we are…

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [166]

——————————————————————————–

So as I told you to bring in synergies, we are in dialogue with REC for aligning our policy, aligning our rating methodology. And whatever we would like to align and for — with respect to the projects also, we are seeing that how we can cooperate and fund projects. Borrowing also, we are interacting with them so that we see that the borrowing is also coordinated in a better way.

——————————————————————————–

Operator [167]

——————————————————————————–

The next question is from the line of Chirag Sureka from DSP Mutual Fund.

——————————————————————————–

Chirag Sureka, [168]

——————————————————————————–

Sir, you — in the start, you mentioned that 66% of your foreign borrowings are hedged. Is it because you hedge only up to 5 years? Did I get that right?

——————————————————————————–

Unidentified Company Representative, [169]

——————————————————————————–

Not necessarily. We prefer to hedge only that — those loans which has the remaining maturity of 5 years because if you see the market for hedging, for the long duration is not good appetite in the market, but then this refer for the — only those loans which has a remaining maturity of 5 years or less.

——————————————————————————–

Chirag Sureka, [170]

——————————————————————————–

Okay, sir. And one more question on the — international rating agencies have highlighted that the capital adequacy is on the lower side. So is there any thought process or — on the capital raising front?

——————————————————————————–

Unidentified Company Representative, [171]

——————————————————————————–

See there — as far as capital adequacy is concerned, why only equity. There are other options available to us like we can raise that mutual bond also. So if at the appropriate time we feel that there is requirement of further capital, we’ll explore that option.

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Operator [172]

——————————————————————————–

Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Ms. Shweta Daptardar for closing comments.

——————————————————————————–

Shweta Daptardar, Prabhudas Lilladher Pvt Ltd., Research Division – Research Analyst [173]

——————————————————————————–

Thank you. On behalf of Prabhudas Lilladher, I thank the management of PFC. Thank you all.

——————————————————————————–

Ravinder Singh Dhillon, Power Finance Corporation Limited – Chairman & MD [174]

——————————————————————————–

Thank you.

——————————————————————————–

Unidentified Company Representative, [175]

——————————————————————————–

Thank you.

——————————————————————————–

Operator [176]

——————————————————————————–

Thank you. On behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.