L&T Fin Holdings creating Rs 10 bn corpus for unanticipated risks

L&T Finance Holdings (LTFH) plans to build a corpus of Rs 10 billion in two to three years, as a provision against future risks.

LTFH managing director Dinanath Dubhashi said the intent was to make a provision of Rs 0.5-1 billion in each quarter. The company had put aside Rs 1.1 billion for this in the September quarter, taking the overall macro-prudential provision to Rs 2 billion, for two segments -- Rs 1.5 billion rural and Rs 0.5 billion for housing.

The intent is to have provisions to the extent of 1.25 per cent of the total loan book. The corpus would be over and above the expected credit loss and standard asset provisions, added Dubhashi.

LTFH's provision coverage ratio has also increased to 62.47 per cent at end-September, from 53.57 per cent a year before.

As far as exposure to the IL&FS group is concerned, LTFH said it has no exposure to the group's holding company and its lending arm, both of which have defaulted on payments. But it does have an exposure of Rs 18 billion in IL&FS Transportation Network Ltd (ITNL) and its special purpose vehicles. In these, LTFH has exposure in four annuity projects and two toll road projects, both of which are operational. 

Of the total exposure to ITNL's special purpose vehicles, Rs 7.22 bn is domiciled in L&T Infrastructure Debt Fund and these exposures are backed by government guarantees.

The toll road projects are secured through the collection of toll. Actual traffic meets the projections. The projects have a track record of three and 10 years, respectively, the company has said. And, cash flows for all the projects are secured through 'watertight escrow accounts', with LTFH having its lien.

Also, all the projects have a debt service reserve account and other reserves amounting to Rs 4.5 billion. "These projects are self-sustaining, without any further equity infusion required from the promoter", it states.