Disbursements Will Increase By 18%-20% YoY In FY25: REC | CNBC TV18

Summary

In this interview with the management of REC, the discussion covers various aspects of the company's business, including borrowing strategies, project disbursements, and future growth. Key highlights include a strong 19% growth in disbursements, a focus on renewable energy projects, and the company's efforts to maintain low borrowing costs. The conversation also touches on the company's plans for asset resolution, concerns about systemic risks, and ongoing challenges in the renewable energy sector, particularly around transmission capacity. REC remains committed to its growth in both traditional power and renewable energy sectors, with expectations for continued strong performance.

Takeaways

• 😀 The power finance sector's structural story remains strong, driven by lower credit risk, strong ROEs, and attractive valuations.
• 😀 REC has a diverse borrowing mix, with 40% from domestic corporate bonds, 18% from domestic bank term loans, and 30% from external commercial borrowings.
• 😀 The cost of funds for REC is currently 7.15%, with expectations to maintain net interest margins (NIMs) in the range of 3.64% to 3.7%.
• 😀 REC's disbursements grew by 19% by Q3, surpassing the previous year's total disbursement target of ₹1.61 lakh crore, and is set to grow by 18-20% for the current financial year.
• 😀 Renewable energy projects are a major focus for REC, with the loan book in renewable energy expected to grow from 10% to 30% by 2030.
• 😀 REC has sanctioned over ₹1.6 lakh crore in renewable energy projects as part of its pipeline, with a goal to reach ₹3 lakh crore by 2030.
• 😀 REC is forecasting a resolution of assets worth ₹2,500 to ₹3,000 crore in the current financial year, with strong recoveries from projects like KSK Mahanadi and Bhadreswar.
• 😀 The IMF report raises concerns about large state-run infrastructure project exposure in NBFCs, but REC maintains confidence in the sustainability of state-run utilities due to government guarantees and strict monitoring.
• 😀 REC's loan book is 88% comprised of state government and state agency funding, with minimal risk exposure to the private sector (12%), ensuring stability.
• 😀 REC does not provide working capital funding to the private sector, adhering to RBI guidelines, and offers limited working capital to state utilities within a ceiling of 35% of their revenue.
• 😀 REC ensures that renewable energy projects are supported by solid evacuation infrastructure, addressing concerns about capacity mismatches in the transmission network.
• 😀 REC’s infrastructure lending has slowed down as more opportunities arise in the power sector, but small-scale infrastructure projects are still being funded.

Q & A

What is the growth outlook for disbursements in the current financial year?

The company is projecting disbursement growth of 18-20% for the current financial year, with disbursements already surpassing ₹1.68 lakh crores, exceeding the previous year's total of ₹1.61 lakh crores.

What is the company's borrowing mix and how has it impacted their cost of funds?

The borrowing mix consists of 40% from domestic corporate bonds, 18% from domestic bank term loans, 10% from 54 EC bonds (capital gains tax-saving instruments), and 30% from external commercial borrowings (ECBs). The company has used innovative hedging techniques to reduce its cost of funds to 7.15% by Q3, and it aims to maintain net interest margins (NIM) between 3.64% and 3.7%.

What is the focus of the company's investments in renewable energy?

The company is committed to growing its renewable energy loan book from 10% to 30% of assets by 2030, with a significant pipeline of sanctioned projects in the renewable energy sector.

What steps is the company taking to mitigate risks related to state utility financing?

The company maintains strong risk management by securing loans with government guarantees, and it has never experienced default from state utilities. Additionally, the company conducts detailed analysis and adheres to stricter norms stipulated by the Ministry of Power to avoid unnecessary exposure.

How does the company manage systemic risks in its loan portfolio, particularly regarding large infrastructure projects?

Despite concerns raised by the IMF regarding systemic risks, the company assures that no state utility has defaulted, and it follows strict monitoring processes. The loan portfolio is 88% funded by state governments and agencies, and the company is committed to prudent lending based on project revenue sustainability.

What are the company's expectations for recoveries from asset resolutions this financial year?

The company expects to recover between ₹2,500 to ₹3,000 crores this financial year, with major recoveries anticipated from projects such as KSK Mahanadi, Bhadreswar, and Nasik.

What role does the renewable energy evacuation infrastructure play in the company's lending decisions?

Before financing a renewable energy project, the company ensures that the evacuation system and connectivity are in place. Although the renewable energy sector faces minor issues with evacuation, the company ensures that these are addressed before approving any loans.

How much of the company's loan book is dedicated to renewable energy, and what is the future outlook?

Currently, renewable energy accounts for 10% of the company's total loan book. The company is aiming for this percentage to grow to 30% by 2030, as part of a broader strategy to focus on renewable energy financing.

What is the company’s approach to working capital financing for the government and private sectors?

For the government sector, the company adheres to a ceiling of 35% working capital financing as mandated by the Government of India. For the private sector, the company does not provide working capital funding, ensuring compliance with RBI regulations.

What is the company's approach to infrastructure project financing, and how does it prioritize projects?

The company is currently focused on power sector projects, especially in thermal and renewable energy. While it continues to engage in infrastructure financing, its attention is primarily on power generation projects due to the many opportunities in that sector.