The Hindu Business Line : PFC will tap cheaper funds via banking foray

ESTABLISHED in July 1986 as a Development Financial Institution dedicated to the power sector, the Power Finance Corporation has emerged as the premier lending agency for the beleaguered power sector. The mini-ratna company has been chalking out plans to foray into newer areas, including retail banking, and is now poised to float an IPO.

Speaking to Business Line, Mr R. Krishnamoorthy, Director (Finance & Financial Operations), outlined the company's plans to tap cheaper funds through the banking foray even as it retained a distinct profile. Excerpts from the interview:

With regard to Power Finance Corporation's foray into banking, could you share with us some of the plans? Has the roll-out schedule been firmed up?

Banking is one of the strategic moves that we are trying to get access to cheaper funds so that we are able to lend at a more competitive rate than what we are doing presently. The schedule as it is has not been drawn up and we are in the process of working out various alternatives of how to go about it. We are in the initial stages of internal brainstorming and discussion. It should take shape in another 3-4 months to come.

Meanwhile, the Sadashivan Committee has also recommended the roles of development financial institutions (DFIs) and has stated that most of the DFIs should covert themselves into banks although the Government itself wants specific sector oriented development for companies, in which DFIs would look specifically at development financing. So we have to wait and see how things move and what is the thinking of the Government.

If the foray into banking goes through, then the lending levels to the power sector would shrink. So, to maintain the same levels of exposure in the priority sectors, you would have to lend at much higher levels than presently. How would you maintain the balance?

That is true and this presents a great challenge when we convert, if at all we convert to a bank. We will have to definitely meet all the various other requirements of the Reserve Bank of India, particularly the Cash Reserve Ratio (CRR) in priority sector lending. We hope they will give some exemptions in the initial years as they have done in case of Kotak Mahindra. We hope to convince the Government and RBI about the exemptions.

As against our present compounded annual growth rate (CAGR) of 15 per cent, perhaps we will have to work more to achieve a growth of 22-23 per cent to maintain the present levels of profitability. Once we become a bank, apart from the power sector, we can also enter other sectors. As you know, banks are allowed to go in for raising bonds from the markets for more than five years maturity, which can be used for infrastructure lending. So, banks will be able to get reasonably good rate and the infrastructure lending rates will be more competitive.

How do you propose to differentiate PFC from other lending institutions? Following the foray into banking, how do you propose to maintain a distinct profile?

The past records reveal that even though we have been consistently lending to a single sector, our disbursement, sanctions, profitability, recovery rates and so on are all comfortable. In fact, sanctions and disbursements are exceeding targets and we have managed to maintain a recovery rate of around 99 per cent. We hope to be able to sustain this growth and maintain a good balance.

Thanks to the Electricity Act 2003, there has been a revival in the interest of Independent Power Producers (IPPs) in the power sector and several power projects are set to achieve financial closure in the coming months. Due to all these initiatives, the unique position of PFC would be still maintained.

How is the India Power Fund (IPF) shaping up? Is your request for a Rs 1,000-crore corpus from the Government coming through?

I'm not sure if we are really getting Rs 1,000 crore from the Government. Its a request we made in the past and are hoping for it, but have not heard either way from the Government. Nevertheless, we hope to garner a good amount of money through the initiative. PFC, as you know, has committed Rs 200 crore to start with. We are in dialogue with NTPC and some banks.

Which are the banks that have evinced interest?

Canara Bank, Union Bank of India, Bank of India and Punjab National Banks have promised around 100 crore each. This is the minimum amount and we have requested them to increase their commitment. There are others too...

At what stage is your proposed IPO?

The request is still pending with the Ministry of Power. In fact, PFC took the initiative at the behest of the Ministry of Power.

The consultants appointed by you have suggested that the return of equity to the Government prior to the public float should be done at par rather than at book value...

This was suggested by the consultants to improve the pricing of the issue. But first the Government has to decide on the IPO itself, only then does the question of return of part of the equity arise.

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