Power Finance Corporation, which has secured in principle approval for acquisition of government stake in Rural Electrification Corporation, says it has improved its capital adequacy from 17.71 per cent in the beginning of the financial year to 19 per cent by the end of the third quarter and hopes to maintain the regulatory requirement of 15 per cent even after the acquisition. In a conversation with M C Vaijayanthi in Mumbai, Rajeev Sharma, CMD, PFC says the company is trying to bring down the risk weighted asset proportion as well as planning to raise subordinated debt for Tier-II capital. Excerpts:
You have talked about synergies the integration with REC would bring about. Can you elaborate?
Number one, REC has a presence in 21 states. I don’t have offices… only a small one in Mumbai, one in Chennai. They are sitting on the head of state power utilities, they are getting businesses faster than PFC, we have our head office in Delhi and 99 per cent of our officers are sitting there. We will be leveraging their presence all over the country.
Secondly, REC has been a leader in transmission and distribution. Only in 2002- 03, they were allowed to fund large generation projects. We are leaders in generation, we will learn from each other. Third, we are facing problems in resolving stressed assets, in some cases where REC doesn’t agree. If we are one company, we will take uniform approach. This will be very important for resolving stressed assets.
Fourth, sometimes we are competing internationally for raising funds. Now, we will be a single company, we will raise funds at competitive rates. Lending policies will be similar. Moreover, our balance sheet will be bigger, I think next to State Bank of India. Internationally we will be able to get better rates.
You said cost of funds fell by 30 bps year-on-year. How much more savings do you foresee?
Definitely, there will be savings in cost of funds. I can’t quantify it, but we will be getting better rates.
There have been reports that disbursals have come down after the announcement of the merger. What kind of loan growth do you expect?
Loan asset growth has been 14 per cent in the last quarter. Either we will be able to maintain that or it will grow. I don’t see it coming down. Almost every household has been connected to electricity. It is not a single connection anymore, even a BPL household wants to have TV, fridge.
Demand will further increase with time. You will require more capacities, and we will be a single player in the market. Banks are not finding the sector very attractive. We will have abundance of business. There is no problem in getting business.
There are many generation projects that are stuck with the NPA problem, do you see fresh capacities coming up?
Fresh capacities, yes. After three years there will be shortage... we are not realising, we have not planned. There used to be five year plans earlier, now that kind of planning is not there.
Suddenly we will face shortage of power one day, because demand is growing, aspirations of people are growing. Aspiration for electric vehicles, charging stations will come up, where will they get electricity from?
Do you see scope for greenfield projects?
Renewables will increase. You can’t say thermal will not come... some coal based projects will also come. And if gas becomes cheaper it will also become viable. Government is also planning to announce a hydro policy, so some hydro projects may also come. We are getting more renewable projects. I think we have 6 per cent exposure to renewables and hope it would be 10 per cent by next year.
Would you fund bidders who may buy projects in the NCLT process?
We have taken a position. When a new developer takes over, if the project is viable then we will fund, otherwise not. Like Tata Power taking over Jaypee Prayagraj, that is a viable project, has 100 per cent PPA.