If I see disbursal versus sanction a decade ago versus the trend in the last three years — obviously the sanction and disbursement have been much lower versus what you have sanctioned a three year period versus FY14, 15, 16. So between sanction and disbursements, apart from the reasons just mentioned, what are some extra processes or extra approvals that we are waiting for, which we were not doing a decade ago? Has operationally something changed in our processes in dealing with how fast the sanction moves to disbursal?
The earlier you were talking about that, we have a huge number of sanctions, but we need to appreciate that from where those sanctions were coming at that point of time, large number of thermal projects were being sanctioned, which were of high value. Each of the thermal project has a huge capital outlay. And the capacities also were large as against those numbers. If we see in the present context, the most of the sanctions are coming from renewable, refinancing, where the gestation period is very short. So and the quantum is low, we compare a renewable project versus a thermal project, renewable project — the capacities are low, and accordingly the capital cost is also project cost is also low. Number of sanctions may be more. But the quantum for each project and hence the overall sanction cycle. On PPAs — I think that is being addressed at the proper government level. Be the right of the way issue or PPA is not coming in, or the evacuation facility for the renewable, leading to non-signing of PPA — that has been in the highest level, at the Ministry of Power level, it is being expressed.
On sanctions: in Q3, you had mentioned the sanctions number was around 2 lakh 50,000 crores. What is the number as of the end of FY 25? And last year's number was around 2 lakh 80,000 crores. So going forward, what are the key contributors? On distribution side — LPS is now almost behind, RDSS is something which will probably drive disbursement ahead. But for entire FY25, RBPF was driving the distribution loan disbursement largely. How is the progress on RDSS disbursements government grant component versus PFC, REC component? And on private sector stage three which is around 1.94 has come down vis-a-vis 2.7 last year — is this because of resolutions which already happened? Are these legacy assets or any new fresh additions in recent periods?
On the Discom side, there is a RDSS scheme. I told you that the counterpart funding, we have undisbursed sanction to the tune of around 38,000-39,000. So everybody knows that RDSS scheme was launched and there were some delay in placing the tenders. So now the tenders have been placed. So the work which is almost now is going to be in full swing. First the government grant will be released and subsequently the counterpart funding will come into place. So this is the way and we are expecting that we are going to have the disbursements competitive higher as compared to the previous year in the current financial year.
Over the last three years, we have grown at a CAGR of around 13% wherein the private sector has roughly grown at around 28 to 30% CAGR. Whereas the government sector growth is around 10%. And the asset quality has also been phenomenal over the last three years, aided by resolutions and no new slippages. How do we see the asset quality trending going ahead, given that we have grown quite significantly, also this private sector growth — the book has more than doubled in last three years. What would be the behavioral tenure of these loans?
See, on the private sector, everybody knows that, as I told you in the initial remarks that the growth is coming either from the distribution sector or from the renewable and renewable has primarily been in the private sector. So all those disbursements have taken place in the renewable private sector. And that is how you are seeing a shift in our bifurcation between the government sector vis a vis the private sector. Going forward also, we are looking for funding for the cleaning energy in a big way and in line with the government vision, more and more participation from the private sector. Our financing is also going to go in that direction. If you talk of the government sector earlier, there were huge generation projects which were expected to come up in the government sector, which PFC was part of the consortium funding. So now the major disbursements in the government sector is towards the DISCOM and the DISCOM — the major funding requirement is coming for the funding of the government schemes like LIS, LPS and in the recent past we have funded the RBPF. So this is how you are looking at the shift in the PFC book for more towards the private sector as compared to the government.
Talking about 10 to 11% growth with a 2.5% spread — does that take into account that we are in a repo rate cut cycle and a lot of the PSU banks are going to have full pass through of repo linked loans? Do you expect some bit of pressure either on margins or on prepayments? Question two — you talked about Gensol being a promoter issue. Would you want to flag any other potential promoter issues or any other slippages we can expect? And lastly, more of a macro question — government pivot away from Capex more towards consumption, whether reallocation of state budgets or government budgets. In context of more than half of our disbursements being to state governments for distribution, do you worry that there is lack of discipline now in state governments to maintain their balance sheets and therefore do the losses of these state electricity boards start to go back up?
For any financial institution money act as a raw material. So when we borrow funds, at whatever rate we borrow funds, that is going to be a major cost of output also. So similarly for PFC, when we borrow funds, if we are able to raise at a lower rate, definitely. That is why I say that we are going to maintain our spread guidance. It's not that we are not going to reduce our lending rate. But yes, I agree the way you said that for any bank, repo rate reduction has a larger impact in reducing the cost of borrowing as compared to us, where we have most of the commercial borrowings that too from the bond market, which is more or less fixed in nature. But still, since we have an average liability period of four, four and a half year, we expect our 25% borrowing to be repaid. And whatever borrowing we are making fresh, that is going to come back at current market rate. Okay, transition may be slow. I agree it has always happened and our borrowers know it very well. Whether it's an increasing interest rate scenario or a decreasing interest rate scenario, in both the case for PFC, the transition is slow as compared to the banks. On your next issue about the slippages. I think we declare the slippages wherever it is at the earliest possible opportunity. In Q3, we have categorized the Goodwatts as the NPA and in Q4 immediately, even though there is no default or no overdue against GENSOL, we had received all the payments which were due, but we have because of the fraud, we have already declared it as NPA. On a 5,43,000 crore, an asset of 120 crore or a 260 crore getting an NPA, I don't think that that should have a concern for the investors at this stage. About the distribution sector — you need to appreciate the increasing requirement and size of the balance sheet of the distribution companies. Under RDSS, we are insisting for payment of government department dues, we are insisting for payment of subsidy dues in a timely way which can help improve the viability of the sector.
Should we interpret that as frictionally you might have some bit of NIM compression. And then like a lagged improvement once your cost of funds also starts to go up? Because your asset side might get repriced down to prevent prepayment pressure, whereas your liability side will only get repriced down over time based on the maturity of your liabilities. Is that the way to interpret it?
I don't think that you are going to see that in the near future we will be able to maintain our spread guidance.
On the spread compression bit — assuming you pass through once you start seeing a decline in the cost of funds. And banks have an advantage because the repo rate decline is immediate. Is that the reason we are guiding from like 14-13% to 11%, because banks have an advantage in passing it through quickly? Secondly, what's the rate differential between what we charge and what the bank charges on a renewable project? If it's like in the previous cycle, it was over 100 bps. Has it come down? Thirdly, on the DISCOM front, you mentioned 55% of disbursements for DISCOMS. What's the nature — is it broadly mainly RBPF like REC highlighted? If that's the case, is the 10-11% also at risk?
So this there are lot many reasons you can't attribute that thing to well one factor about the interest rate. So growth I told you that earlier we have been disbursing for LPS also. And gradually as the DISCOM is improving in their financial health, definitely they would also like to have a lesser of the working capital requirement, once they receive the money from the respective state government timely or their tariff is revised. So factoring that thing into account, we said that our growth margin growth trajectory could be only 1% we said as compared to the previous period, it's not that we have come under a single digit or something. So I don't think that interest rate has any role to play in that. On the difference between the bank and the lending by PFC interest rate scenario. It will always be there. Banks have access to CASA, which we don't have. They have access to and they do invest in Gsec, they do invest in other and they have another factor that they can charge retail at a higher rate. Generally, we have seen that retail lending by the banks, are at a higher rate. So they can compensate that lending to give a very fine rate for the maybe infrastructure or for the project where revenues are streamlined. So it's a basic model difference in working between PFC and banks, whereas PFC doesn't have, we are borrowing from the bank in that case, where they are charging us at least MCLR or marginally below MCLR, that difference is there today. That was yesterday also. And I think going forward also, that difference is going to remain.
Could you quantify the difference, the rate differential between, say, what the public sector bank and what PFC would charge?
See, there is no standard rate by the banks also to fund for the renewable sector. And for us, the rate starts at 8.75 and goes based on the rating of the borrower.
About the battery and energy storage capacity on the renewable front, are we not seeing a limitation in the battery energy storage capacity of renewables? That is possibly one of the reasons why the renewables growth is still not as we are capable of tapping for solar or wind.
As I told you in my initial remarks around as of date, around 45% of the installed capacity is the renewable capacity but the basic nature of the renewable capacity, the intermittent nature of the renewable capacity, which can impact on the stability of the grid, forced to rethink about the storage system. That is how the Central Electricity Authority has mandated two hours of the storage be it through battery storage or through pumped storage. Battery storage is faster to implement as compared to the pumped storage, which may take gestation period. Then the next factor comes the cost — we have seen the costs coming down. What we are discussed that it has come down to 6-₹8. That is, without VGF. If we account for the VGF, it is now sub five but we expect with the technological intervention it is going to. Still there is a scope for still going to come down, but with more and more auctions coming with this storage facility, I think the supply factor is going to work in the favor of price, and then we can achieve some economies of scale like we have seen in the solar systems panels, which were originally coming at a very high cost and then gradually the costs were coming down. And similarly, we are expecting for the battery storage.
Thank you for taking my question. The question that I had was trying to understand when we look at growth versus where we were — obviously, the loan book size is increasing. But somewhere we are also seeing that in terms of guidance, we as well as REC earlier have moderated our loan growth guidance. So what has really changed in the last maybe six, nine months which is prompting this moderation in guidance? The government has not really changed its plans on installed capacity addition on thermal, renewable. And related — we keep hearing about land acquisition issues, right of way, weak PPA signings. Are these some of the things leading to our guidance being moderated or is there something else we should think about?
As I told you in my remarks that the growth in the current financial year has come primarily from the distribution sector, which is 55% disbursements and followed by renewable sector, which is 17%. When we talk of the distribution sector, two of the major schemes — LIS was already over, but disbursements were being made under LPS scheme, which we are seeing is almost over and a very, very few disbursements are only which we are expecting in the current FY 26. So that is the major change going forward. And definitely, once the disbursements are low, the growth is also already going to be impacted. If you have seen that last year, we have been seeing that we are going to grow at 12 to 13%. We have not substantially decreased our guidance for the growth. It is only 10 to 11% we have said and growing on the expanded denominator, I think you can very well appreciate that how it is going to go forward. Your next concern was about the land issue, right of way, PPA not being signing. These are I agree these are the sectoral issues, but I don't think that these factors are going to hamper our growth in a major way.
My question was on disbursement — since majority of our disbursement is going to be towards renewable and towards DISCOMs in 26, do you see the margins compressing in FY 26 from here on or versus FY 25? And the second question was on repayments — this year repayments or prepayments have been one of the reasons behind little softer growth. So do you see that continuing in FY 26 as well?
See on the spread front, I have already given in guidance that we are going to maintain it within our earlier guided range of around 2.5%. On your prepayment thing, what I understand is, is there in the normal course of business for each of the financial institution. Yes, I agree, in some years there are huge prepayments and in some years the prepayment may not be to that tune, but we have been given the guidance every time during the last financial year that our growth expectation is around 12 to 13%, and this is what we have delivered on. So I think considering all the facts, we are expecting that this is going to be the 10 to 11% going to be the growth this financial year.
First, before your presentation, there was an audio video clip — truly remarkable. Two important things one — you said 15 discoms have been upgraded — is upgradation because of the installation and usage of smart meters? And second was — 13 discoms have been downgraded so what are the reasons for upgrade and downgrade? And second part — on the battery energy storage capacity it appears we are not fully equipped to enhance this capacity in line and in proportion with the renewable energy growth. Any thoughts on that?
About the downgrades and upgrades in the distribution sector. The rating is quite comprehensive and we have almost 75% weightage attached to the financial performance. So and that largely consists of the subsidy support from the government, the efficiency improvements, the impact that has on their performance and also the reduction in their AT&C losses, all these combined factors. We have seen improvements largely — the trend has been after the introduction of RDSS, we have seen improvement in terms of the gap and improvement in terms of AT&C losses and that's the reason. And also there are some states which have slipped or which are only maintaining that. As a reason, we have seen some states or discoms going for downgrades, but largely we have seen improvements happening in the distribution sector. So the downgrades and upgrades are worked out on the same parameters, because that is a standard mechanism where we say that if the performance of a particular discom has improved, then they will get higher marks. And if it is not better than the earlier year, then it is going to be downgraded.
First — what explains this increased provisioning coverage on stage one and two, is it underlying asset quality safe, or is it in some way preparing for any sort of a project financing provisioning? Second — in this 2.58% spread for last financial year, is that KSK Mahanadi interest recovery of 1200 crores being considered? If that is the case, then underlying spread is lower than 2.5 — in that backdrop, is the next year 2.5 guidance at risk?
We have increased the provisioning in the stage two from 0.58 to 1.85% on an average. So that is basically there was some guidance from Reserve Bank of India and there has been some prudent approach which PFC has adopted. So that is how we have increased on an average, the coverage in the stage two account. On your second question, while we work out the spreads, I can assure you we have not taken into account the case KSA Mahanadi the interest for that purpose. So that is not going to impact our future spread guidance to that extent.