IDFC to set aside additional Rs 2.5K cr as special reserve

IDFC today said government's moves on gas and power sector have not had desired impact and it is forced to create a special reserve of Rs 4,500 crore to cover expected losses from power sector loans, which will ring-fence its soon-to-be-launched universal bank.
The company, which today announced to start banking operations on October 1, will be setting aside an additional Rs 2,500 crore by September to insulate the bank, its managing director and chief executive Vikram Limaye told reporters here.
"We are at a stage, where we are transitioning to a bank and the balance sheet of the bank has to be protected against known risks," he said.

The corpus in special reserves added through additional provisioning in the last few quarters is at Rs 2,000 crore at present and another Rs 2,500 crore will be added to take the total buffer to Rs 4,500 crore before the start of bank operations.
Limaye said IDFC has identified Rs 8,500 crore of assets as stressed --- which includes those reported as NPAs, restructured and refinanced --- for which it has decided to provide 50-60 per cent.
A bulk of the stressed assets are in the power sector, which occupies 40 per cent of its book, Limaye said, adding that the government's recent initiatives on the tariff and fuel supply front have not bettered the situation.

"The reality is that what we have been hoping for the last few quarters, (which is solving of) issues surrounding gas and coal assets, are still largely unresolved," Limaye said.

He cited one account with an exposure of Rs 350 crore slipped into NPA in the June quarter as the coal block allocated earlier got cancelled.
The problem with the coal block auctions, which were intended to resolve the legacy issues in the sector, is that companies have bid negatively hoping for relaxations on the power tariff setting front, which have been already denied, Limaye said.
On the gas policy as well, there has been no impact and issues persist, Limaye said.