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Expect 16% Growth in Disbursements by March FY12: REC

  • Rural Electrification Corporation (REC) has reduced its guidance for full year growth in disbursements from 25% to 16%. In an exclusive interview to CNBC-TV18, director finance HD Khunteta says that slow disbursements in December 2011 has impacted overall growth. "However, we expect it to pick up in January," he added.REC had reported a net profit of Rs 770 crore in the quarter ended December FY12, a growth of 16% as compared to Rs 664 crore year on year. Net sales jumped 27% to Rs 2,650 crore versus Rs 2,086 crore year-on-year.Khunteta goes on to say that he sees risk of defaults from state electricity boards (SEBs). "However, we are trying to sustain growth," he said.

  • Q: Can you throw some more light on why there is such a slowdown in disbursements and do you expect it to continue for many quarters to come?

  • A: Up to November 2011, the growth was around 25%. In December 2010, we disbursed Rs 3200 crore whereas in December 2011 the disbursement was around Rs 1000 crore. So because of that the overall growth in the disbursement has been affected and it is at around 11%.

  • I think by March we will be able to maintain the growth of around 15-16% because in month of January it has again picked up; normally the last quarter growth is much higher. So by end of this year, the total disbursement may be around Rs 26000 to Rs 27000 crore which is around 16% growth compared to the previous year.

  • Q: Have you received that clearance from the Finance ministry on the Rs 4000 crore tax free bond that you were planning and can it happen by March end as was planned by you?

  • A: Now the size has been reduced to Rs 3000 crore and we hope that the approvals will be received by end of this month and we will come out to the market in first week of March or last week of February.

  • Q: Have you worked out a rate on the bonds because some of your peers have had extremely lucrative rates to offer on tax free bonds?

  • A: As per the government lines, it can be lower by 50 basis points on G-sec rate for 10 year or 15 year bonds, so we will stick to that. I can't say what the G-sec rate will be on 31st January or 28th February, whether it will be 8.30% or 8.15% for 15 year or 10 year, but it will be 50 bps below that. So everything depends on the G-sec rate.

  • Q: The market has been quite concerned about the asset quality and the kind of pressures that you guys are facing. Where are the highest defaults coming in from and are you getting any requests for fresh restructuring of loans from the SEBs?

  • A: The quality of assets is a concern for everybody, so I can't say that there is no fear of default. But at the same time, the states have taken a number of steps like increasing the tariff, they have submitted the tariff petition, subsidy payment has been started by the respective state governments. You have seen that a number of banks have already structured the loans, from short term to long term. Even I have discussed with the Rajasthan DISCOM, and they are discussing with the banks and the RBI that the short term loan liability should be taken over by the state government.

  • So we are definitely concerned and corrective steps are being taken by us. So far 2 NPAs are there; one is already accounted for in the third quarter and one is Maheshwar for which the impact on that account as far as interest income is concerned is around Rs 50 crore which has not been accounted for. Even then you can see the bottom line growth is around 11% compared to the previous year. So we are trying to sustain the growth.

  • Q: Is it safe to say that these gross NPA levels of 0.5% will come off from here on and that you'll see significant amount of relief on this front? Also can you tell us about the private sector involvement because your proportion of loans to the private sector has gone up?

  • A: Basic problem is rising on account of fuel supply. You have seen that the power sector developers backed by the Prime Minister and the committee has been set up under Mr. Chatterjee and we hope that the solution will come either through import of coal by Coal India to meet the short fall of about 15-20% or by bringing in the private sector coal mine developers. Meanwhile, the efforts will be made to call the bids from the top rated international mining companies to develop the mines within two years. So road map has to be prepared. If all these steps are been taken, then the cost of generation will be more or less in the range around Rs 3.25 to Rs 3.75 which is within the affordable limits.

  • So if all steps are being taken, I think the private sector will not make the default. The positive side is that whatever the loans has been given is backed by assets which has been constructed or completed in 3-5 years time so in the long run, it cannot be a NPA. Power is a necessity and nobody can live without power. So in long run I don't think there may be any NPA but short term some pains are there. But if right steps are taken by the government of India or by the state DISCOM then definitely the solution is there and this challenge can become the possibility and a positive to that in future for the overall power sector will be in a better position.

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