The Hindu Business Line : PFC mulls converting into universal bank

Mr A.A. Khan, Chairman and Managing Director, Power Finance Corporation Ltd (right), and Mr R. Krishnamoorthy, Director (Finance and Financial Operations), at a press conference in Chennai on Saturday — Bijoy Ghosh

Chennai , June 19

POWER Finance Corporation, a Central Government undertaking, is exploring the possibility of converting itself into a universal bank. It has commissioned Morgan Stanley, an investment banker, to study the possibilities of doing so, according to company officials.

The idea behind the move is that as a universal bank, PFC will be able to access cheaper funds than what it is now being able to do so. "If PFC can get converted into a bank or acquire a bank," it would be able to get cheaper funds, Mr A.A. Khan, Chairman and Managing Director, said at a press conference here on Saturday.

But would not converting into a universal bank dilute the company's focus on the power sector, as there would be a cap on lending to a particular sector? Mr Khan and Mr R.Krishnamoorthy, Director-Finance, did not think so. Mr Krishnamurthy said PFC could seek exemption on this sectoral cap.

Mr Khan said that the company would raise Rs 8,000 crore this year from the market for its various lending activities. Last year, it raised Rs 8,100 crore and the average cost of borrowing was 6.5 per cent. It had pre-paid most of the high cost debts but still carried about Rs 6,000 crore of high cost funds because of which the cost of borrowing was 9 per cent.

The company held a road show last week to raise $100 million in dollar denominated funds. The external commercial borrowings were being syndicated by State Bank of India and Barclays and a number of foreign banks were interested in extending assistance. The rate would be LIBOR (London Inter-Bank Offer Rate) plus 90 points and some charges, Mr Krishnamoorthy said. The ECB would be finalised by mid-July.

To a question, Mr Khan said that there had been some delay in registering two companies — one a trustee company and the other an asset management company — under the India Power Fund, which the PFC had launched. The fund was to provide "last leg equity" in power projects. Against an earlier schedule of registering the two companies — IPF Trustee Co Ltd and IPF Asset Management Co Ltd — by June end, PFC now expects this to happen by July end. Banks such as Punjab National Bank and Canara Bank had said they would commit Rs 100 crore each to the fund while State Bank of India had also shown interest. Besides, the Union Power Minister had said Rs 1,000 crore would be provided through the budget to the fund.

The India Power Fund's corpus would be about Rs 7,000 crore over the next few years and this was mainly to meet the shortfall in equity for power projects. The total equity requirement for power generation projects had been estimated at Rs 70,000 crore and the fund would cater to 10 per cent of this, Mr Khan said.

He said PFC had signed an agreement on Saturday with Neyveli Lignite Corporation to provide it Rs 2,500-crore assistance during the remaining period of the 10th Plan. This would be at an interest of 7 per cent.

To a question on Tamil Nadu and Andhra Pradesh announcing free power to farmers, Mr Khan termed it as a "retrograde step", but as long as the governments provide subsidy support to the power utilities in the States, there was nothing to worry. PFC's assistance to these States would not be affected, but the company would insist that the utilities be compensated for the subsidy.

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