The power sector in problems that threaten its growth, but government-owned Power Finance Corporation (PFC) feels these can be resolved, says Satnam Singh, its chairman and managing director, to Mansi Taneja. Edited excerpts:
The scenario in the power sector is bleak — high interest rates, problems related to fuel shortage, environmental issues. Has this impacted your lending?
Currently, not much. In 2009-10, our growth rate in loan assets was 24 per cent; in 2010-11, on a higher base, it was 25 per cent. In the first half of this financial year, on a still higher base, we have achieved 26 per cent. More, we have an order book of Rs 1,79,000 crore. So, it has not affected our growth rate much but if decisions relating to environmental clearances, coal mines, coal supply or price compensation are delayed for a very long period, then it might.
Have high interest rates affected your lending portfolio?
Our structure of lending is such that any increase in rates doesn’t affect our operations much, because we have a structure of passing it on to the borrowers.
We do get affected to some extent. As in the past 1-1.5 years, the Reserve Bank has been increasing rates every now and then. Our liabilities get repriced very quickly, on that date itself, whereas the assets for that much increase get repriced on a quarterly basis, so there is a temporary gap because of this mismatch within the year, as we can’t increase the rates on the day RBI does. That is the impact. Otherwise, on an overall basis, we are able to pass on the increase.
Second, in future disbursements, the rate of interest is charged on the basis of date of disbursement and not fixed at date of sanction.
What is the kind of exposure PFC has to distribution companies, which are facing difficult financial times. Have you done any restructuring of loans? Or, do you expect any default. You had stopped giving loans to discoms earlier.
Our lending to discoms was very minimal. It is mainly to generation and transmission companies. Nevertheless, when banks stopped lending to discoms, we also stopped. After finalisation by the ministry of power of the uniform lending criteria for short-term and long-term loans for PFC, Rural Electrification Corporation and banks, we have resumed short-term loans to discoms.
What are the new criteria for lending to discoms?
These are based on discussion among various groups. Banks have also been told it will be in their interest if they’d follow it. There are five points every discom has to meet before lending can be done, and another nine points they have to comply with in the next six months. The loan will be given for six months and revived only if the conditions are met. Among the five points, last year’s rate order should be in place and next year’s rate petition should have been filed, the current year subsidy should have been paid by the state government and audited accounts should be available for a period not later than 18 months.
What is your outlook for the power sector?
Because of the fast growth rate the sector was able to achieve as compared to the past, some new issues have come up, which are areas of concern but not such that these cannot be resolved. We are talking about long-term growth; we can’t base the view on one year’s problems. On coal and distribution companies, steps will be taken which will have a positive impact on revenue generation. All these issues impacting the power sector will be resolved soon.
