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C. Shivkumar

BANGALORE, July 26

THE Power Finance Corporation of India (PFC) and the Rural Electrification Corporation (REC) have begun examining the possibility of raising resources by securitising receivables.

Sources said here that such an option was being considered to restrict the build-up of borrowings in their respective portfolios. This securitisation is expected to be on the same lines already done by REC about two months ago. REC's securitisation programme then involved discounting of receivables from the Andhra Pradesh Government-owned utility, APTransco. Conversion of these receivables into non-recourse pass through certificates (PTCs) had allowed REC to raise Rs 100 crore through the non-debt route, at yields as low as 10.20 per cent. This securitisation programme had allowed REC to realise a spread of at least 3.5 per cent, after netting for costs. The structuring of this PTC was done by Infrastructure Leasing and Financial Services Ltd (IL&FS) and entirely on a non-recourse basis.

Unlike securitisation of auto loans or housing loans, REC and PFC loans to State utilities are backed by assignment of revenues from certain designated circles or escrow accounts with a first charge on revenue receipts. Further, these receivables were also backed by funded guarantees from the State Governments. Consequently, the risks of defaults or delayed payments were almost non-existent, they added.

The sources said that similar programmes were being considered in view of the changes taking place in the financial markets and the possible tightening of the capital to risk-weighted assets ratio (CRAR). Currently, lendings to State Government utilities are entitled for only a 20 per cent CRAR unlike commercial lending where the risk weights assigned by the Reserve Bank of India are as high as 100 per cent. However, risk weightage to State utilities is also expected to be raised to100 per cent in the coming months, the sources said.

Besides, the sources said, raising funds through this route was considerably advantageous, for the originators. This was because such resource raising mechanisms would help them to improve their existing CRARs and eliminate any possibility of asset liability mismatches. Such asset liability mismatches are becoming a distinct possibility with many of the borrowers opting to pre-pay some of their old loans even at a premium to face value. But the greatest advantage of securitisation is that it allows the lenders to bring down the weighted average cost of working funds. The sources said, that if some of the assets of PFC and REC are securitised, based on the current market rates, the discounting could be as low as 8 per cent. Consequently, both the institutions would be in a position to pass on the benefits of low costs to potential borrowers and be in a position to lend at about 9 per cent to the State utilities. These rates would be much lower than what State Government guaranteed borrowers are raising in the markets.

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