IDFC to increase provisioning for exposures

Unhappy over newly-introduced policies to solve issues in gas and coal for power sector, infra lender IDFC today said risks to lending might have gone up as a result of them and the company will be forced to accelerate its provisioning for exposures.
"We were in fact expecting that both coal and gas risks would come down. It might well be the case that the risk has not come down, it has in fact gone up and therefore, from our perspective, till that risk actually comes down, our objective is to provide against those risks," IDFC Managing Director and Chief Executive Vikram Limaye told reporters.

The power sector comprises 40 per cent of IDFC's book, which decreased 8 per cent in FY15 to Rs 54,745 crore, he said, adding that IDFC will have to provide more for such exposures as it would not like to take a hit after converting into a full-service bank in October.
"We do not want to get into a situation wherein the first full year of the bank being operational, we end up taking large provisions for risks which we were fully aware of before the transition to a bank," he said, adding that the provisions will go up over the next two quarters.

The company, which along with micro-lender Bandhan, has been given an in-principle nod for starting a full-fledged universal bank, witnessed an over 61 per cent jump in provisioning in FY15 to Rs 1,013 crore.
Elaborating on IDFC's concerns, Limaye said with regard to gas, the company's review suggests that borrowing plants may not be in a position to repay fully because of the way the new policy is structured.

On coal, he pointed out to the uncertainty on whether the negative bids put in by the bidders would actually be permitted in pass-through in tariffs to power consumers, adding that there is a looming threat of litigation as a result of the same.

In order to weed out issues, the government had on March 25 come up with a policy on importing gas for power generation.
It also took a decision to allocate coal blocks through auctions and has conducted two auctions so far, garnering over Rs 2 trillion.