Mumbai: On 4th May, Unhappy over newly-introduced policies to solve issues in gas and coal for power sector, infra lender IDFC said risks to lending might have gone up as a result of them and the company will be forced to accelerate its provisioning for exposures.
"We were in fact expecting that both coal and gas risks would come down. It might well be the case that the risk has not come down, it has in fact gone up and therefore, from our perspective, till that risk actually comes down, our objective is to provide against those risks," IDFC Managing Director and Chief Executive Vikram Limaye told reporters.
The power sector comprises 40 percent of IDFC's book, which decreased 8 percent in FY15 to Rs 54,745 crore, he said, adding that IDFC will have to provide more for such exposures as it would not like to take a hit after converting into a full-service bank in October.
"We do not want to get into a situation wherein the first full year of the bank being operational, we end up taking large provisions for risks which we were fully aware of before the transition to a bank," he said, adding that the provisions will go up over the next two quarters.
The company, which along with micro-lender Bandhan, has been given an in-principle nod for starting a full-fledged universal bank, witnessed an over 61 percent jump in provisioning in FY15 to Rs 1,013 crore.
Elaborating on IDFC's concerns, Limaye said with regard to gas, the company's review suggests that borrowing plants may not be in a position to repay fully because of the way the new policy is structured.
On coal, he pointed out to the uncertainty on whether the negative bids put in by the bidders would actually be permitted in pass-through in tariffs to power consumers, adding that there is a looming threat of litigation as a result of the same.
In order to weed out issues, the government had on March 25 come up with a policy on importing gas for power generation.
It also took a decision to allocate coal blocks through auctions and has conducted two auctions so far, garnering over Rs 2 trillion.
With the capital demand for new projects being hurt due to gloomy macroeconomic climate, IDFC had a tepid FY15 when it comes to lending which also resulted in a dip in the net interest margin.
This resulted in the net interest margin narrowing to 3.4 percent in FY15 from the earlier 4 percent, and the company's chief financial officer Sunil Kakar said it expects the same to narrow further down to 3.2-3.3 percent as it has to do lending to low-risk assets and not the big-ticket projects which give it a wider margin.
Limaye said IDFC expects the loan growth to remain flat for the first half of the fiscal and added the government will have to support the economy with higher spending over the next two fiscals before the corporate demands sets-in.
He said the increase in activity, if any, will be limited to the ports and roads sector, and may also extend to defence, but a large part of the infrastructure sector will continue to be under pressure.
Limaye declined to give a credit growth target for the company, saying it is very difficult to put a number in a crucial year like FY16, when it will be transiting from a non-bank lender to a bank.
He said it would have been a lot better had the launching of bank happened in a period of high economic growth unlike what we are going through at present.
"Obviously, when you transit into a bank, if its a robust growth environment, its a lot more helpful because you are able to gain market share and do business with companies in a different way," Limaye said.
He reiterated that IDFC will be starting its banking operations in October first week with a network of up to 25 branches, including those focussed on corporate, rural and retail branches.
However, he refused to answer questions on the company's strategy for the bank.
It has already received all the nods, except one go ahead from the courts, which it expects by July or August, Limaye said.
The IDFC scrip closed flat with an upward bias at Rs 167.95 apiece on the BSE, as against 1.77 per cent jump in the benchmark.
