If there is a 3%, 4% depreciation in USD/INR in a particular quarter, would that result in some rise in our hedging costs again?
I think that would be a random movement. The kind of random movement you are talking about will need an apocalypse. So, you cannot plan for an apocalypse.
There have been murmors that DISCOM debt has become quite large. Any chance of restructuring or discussions on debt restructuring for DISCOMs? And what would be the consequences?
So, I will just come in from the first part. As far as debt is concerned of DISCOMs, primarily six states account for a huge amount of the debt. I think it is UP, Karnataka, Tamil Nadu. I am forgetting the names of the states, but primarily it is concentrated in six states. And Government of India is working for a debt restructuring package that is in the process of development. And I think consultations are at an advanced stage. So, it would not be proper for me to comment on this until something more concrete has come out. But let me assure you that whatever is finally taken, I think a better balance sheet on the distribution sector will only yield better results for us because then CapEx can really take off. Once the debts are cleared, the CapEx of DISCOMs will really take off.
Do you see any risk of our spreads being asked to be compressed on the DISCOM debt side due to restructuring?
I think that is a matter for the future. Let us take that call as and when it comes. It would not be proper for me to speculate on this.
On privatization of DISCOMs - if UP privatizes two of six DISCOMs, private players will seek debt at lower rates. Is it a risk to your Rs. 10 lakh crores AUM target that 40% of your AUM is through distribution companies?
What makes you think a private DISCOM will not come to REC for funding? And what makes you think we will not be in a position to give them competitive rates? And if you are scared that we will lower our interest rates too much, let me assure you that while our rates will remain competitive, it is not just rates that come into factor when you are deciding a loan portfolio. There are 'n' number of other conditions, pre-disbursement conditions, post-disbursement conditions, which also come into play. So, all these are taken into account by the borrower before he takes the final call on his borrowing. It is not just a single variable of interest rate. So, I would urge you not to pay too much importance to just interest rate. Yes, it is an important determinant. But like I said, there are other conditions which are equally important. So, I honestly don't think even with private DISCOMs coming in, we will have too much of a problem.
On pricing for projects where there is government involvement or steady cash flow - are we facing competition from banks? What sort of pricing or spreads are playing out in such projects?
I mentioned this to a previous person. See, when a person takes a decision to fund a project, we look at the IRR of the project, number one. We look at the credentials of the promoter or the state government or the entity, as the case may be, whether it is a private or a state government entity. We look at the government guarantee or lack of it. We take that into consideration. But having said this, the borrower also, apart from the interest rate, looks at ease of delivery, ability to decide fast, ability to take decisions based on peculiar conditions which they are facing, ability to relax conditions to suit their interest. I think REC scores very high on all these other parameters. That is not to say that we don't compete on the interest rates. We compete on that also. I think overall we are a good package.
This Kaleshwaram Project - was the 12% loan growth guidance for FY '26 factored in for this prepayment? Are we confident we will be able to deliver on the guidance? And what is the status of resolution of Hiranmaye Power and Sinnar Thermal?
Yes, we are very happy that almost Rs. 11,400 crores from Kaleshwaram has come back to us, reducing our stressed assets in the Stage-2 category to almost Rs. 16,000 crores, which is a reduction of roughly 52% in our Stage-2 stressed assets. And to your second part, whether we are still confident of achieving a growth rate of 11% to 12%, absolutely. We have already done disbursement of Rs. 1.15 lakh crores. That is with a prepayment of almost Rs. 12,000 crores from Kaleshwaram. So, this growth that you see is with the prepayment, and we honestly don't foresee too many prepayments coming in the remaining two quarters. And if we continue to maintain our disbursements, and we are fairly confident of that, I don't see any reason why we should not touch 11% to 12% by the end of this financial year. With regard to the second question on Sinnar progress, I will request my Director of Finance to just update you on the Sinnar project. Harsh Baweja: As you know that we are in the process of becoming a net zero company by the Financial Year '26, so we expect that these main assets, that is Sinnar and the Hiranmaye, these will be resolved by the year, by Q4. These are at the advanced stage of resolution. Hiranmaye, the outcome of the final hearing is to come in this quarter, Q3 only, Hiranmaye is now with the Supreme Court, judgment is to come from the Supreme Court, and that will take place. And we are confident that all assets, around 11 or 12 assets, are there, that all will be resolved in the Financial Year '26.
In 1H you received almost Rs. 49,000 crores in prepayments including Rs. 11,000 crores from Kaleshwaram, predominantly from internal accruals. Don't you think this trend of higher prepayments could sustain in the coming quarters as well?
You will appreciate that out of the Rs. 49,000 crores, the major have come from the Kaleshwaram. That is around Rs. 12,000 crores. And then Rs. 10,000 crores has come from the RBPF scheme of Andhra Pradesh and Telangana. What they have done, they have availed a long-term loan from us, and they have prepaid this extraordinary amount to REC. So, this is 12 plus 10,000. It is around Rs. 22,000 crores have received on these accounts. These are the one-time scenario. And rest is the Adani - they have made a pre-payment of around Rs. 3,000 crores. That is, again, since their headroom was not there for further sanctions, they have submitted some of the new schemes to us, and that is why they have prepaid us. It is around Rs. 20,000 crores, which has come from the RBPF scheme, where the scheme in itself says that any DISCOM having the surplus cash available may make pre-payment to us, and thereafter, they can avail the funds as and when required by them. And that activity will keep on going. So, other than RBPF and the balance payment of the Kaleshwaram, we don't expect much of the pre-payment coming up in the Quarter 3 and Quarter 4.
There was a draft amendment by RBI proposing to lower capital requirements for lending to high-quality infra projects. How can this benefit us or lead to higher competition? And as RE shares increase in our books, can that lead to lower margins?
First of all, as far as the RBI guidelines have come, these are at the draft stage, and these guidelines are good for us. We are also submitting our comments to the RBI. And we have seen in the past also that whenever the final guidelines are issued, they are generally issued much refined and if you see that these guidelines basically have come as a replacement of the earlier PPP guidelines which were in place. So, these guidelines are in a much better shape. And we expect feedback from many of the institutions, in that case, we can expect that these guidelines would be in a much better shape. And as regards your second question was regarding the renewable portion, yes, we expect that renewable portion will increase. But similarly, we are expecting that the share of distribution and the generation will also keep on increasing. If you see that as of now, my renewable share is around 12% out of a loan book of Rs. 5,82,000 crores. For example, if it touches around Rs. 10 lakh crores and my renewable share gets increased to 25%, that is not going to affect since by that time, my net worth would be around, from as of now, it is around Rs. 82,000 crores, which may touch around Rs. 1,40,000 crores. So, we would be able to maintain our NIM between 3.5% to 3.75% and a spread between 2.75% to 3.5%.
On margins for this quarter and overall cost of funds - borrowings have remained flat but finance cost is up quite a bit. If you can highlight the increase in cost of funds during the quarter?
As far as my borrowing cost is concerned, that has increased a little bit, since that is all because of some of the risk mitigation measures which we have taken in respect of the foreign borrowings. Because of the volatility, we had to take some of the measures that have added to the cost. Further, as regards my borrowing cost, almost 80% to 85% is of the fixed cost nature. So, generally, out of that, only 20% redeemed in a year, and all the loan gets redeemed over a period of five years. So, that affects borrowing cost in the years to come, not immediately affects my borrowing cost. So, because of this, the extra measures which we have taken and the fixed nature of my borrowing, this has just increased from 7.12% to 7.17%.
On the Rs. 1,55,000 crores of foreign currency borrowings - how much is hedged and how much is unhedged? And what was the cost incurred on the hedging optimization?
As far as my hedging for this foreign borrowing portfolio is concerned, almost 99% is hedged, which is as per the RBI guidelines. I can say that in terms of the paisa, it is around Rs. 0.08 to Rs. 0.10, which has added to my cost of borrowing. That's all because of the increase in the protection level which we have taken. We have taken a seagull based hedging. So, in that case, we have increased the EKI level so as to give us more protection against any of the volatility which is happening in the international market.
What could be the repayment run rate we can expect over the next couple of quarters and for the second half?
Actually, every month we have a repayment of around Rs. 8,000 crores to Rs. 9,000 crores. That is a regular repayment. And other than that, we have the pre-payments on account of the RBPF, which I have just mentioned. The characteristic of the scheme itself permits that borrowers can always make a pre-payment whenever the cash surplus is available with them. And thereafter, they again seek further funding from us whenever they need the fund. So, that will continue to happen in our portfolio. But for the rest of the things, we are not expecting much of the pre-payment except what we have just said in the beginning of our conference. That is coming from the rest of the amount from Kaleshwaram i.e. around to the tune of Rs. 5,000 crores. And I don't think that other than that, that is anticipated, another Rs. 5,000 crores more per quarter may come.
What is the total Kaleshwaram Project exposure and when will the incremental pre-payments be received? And how much provision got reversed because of this prepayment?
Kaleshwaram total outstanding was around Rs. 17,000 crores, of which Rs. 11,400 crores have already been received. Rest, since it is a space to assess, and we have always focused on the quality of the assets, so that is why we have recovered this much amount from the Kaleshwaram, and that has gone into some kind of litigations also. So, it is good in the interest of the company that we get the prepaid for that. That is why we decided to accept the prepayment for the Kaleshwaram loan. And we expect that the rest of the amount may come in Q3 and Q4. But it is good for the company that the Stage-2 assets get lowered. That was not much of the amount, since the project was secured against the government guarantee. So, it was not a very significant amount which got reversed because of this prepayment.
India's sovereign rating has improved - have we seen any benefit for our foreign borrowing plans? And to what level of rupee against dollar is foreign borrowing hedged?
For example, in case we go for the international borrowing or if we go for raising fund through the bond, then that gives us little benefit. Anyways, we are already at the highest level of the sovereign rating, so that is not going to give us any significant additional benefit out of it. And second question was regarding the hedging limit. Yes. For the different kind of loans, we have a different limit. And as of now, against the dollar, we are very well within the limit. Up to Rs. 90, there should not be any issue. We are hedged much beyond that. We are hedged to beyond Rs. 100.
On the competition front - after repo rate cuts, are we seeing competition increasing from PSU banks or NaBFID? Has there been any pressure on yields? Have we revised card rates in the last six months?
We had reduced card rate in the month of May. And somewhere you will have to understand that we are also in the business. And what is evident is that our disbursement has grown substantially during the Q1 and Q2. So, that is an evidence that we are very much proactive in the market, and we are very much competitive in the market. So, on that front, you need not to worry. And we expect that the competition will come as far as the renewable sector is concerned from the market and there, our rates are the lowest in the market. As far as the other sectors are concerned, REC and the PFC majorly will lead. And we already have the share of around 20% to 25%. We will continue to maintain that share. 20% to 25% share of REC and PFC each.
On growth trend in conventional generation - despite NEP targets, state utility thermal is very slow. Do you see conventional generation disbursement or AUM growth reviving? Transmission has also declined. And state/private mix has gone to 86/14 - what is a comfortable level?
I will take your last question first. We don't plan exactly when we look at what would be a comfortable government or private. We don't go by the nature of the borrower. We go by the nature of the project and its potential to deliver well. So, we fund irrespective of whether it is a government project or a private sector project. So, I hope that answers your question. As long as it's a good project, it gives you a good revenue stream, we will fund it. Harsh Baweja: If you see my entire data, the generation sanctions have increased which was Rs. 53,000 crores in H1 '25, it has increased to Rs. 1,13,000 crores. Similarly, transmission has increased from Rs. 13,000 crores to Rs. 14,000 crores. Renewable, this time we have sanctioned around Rs. 45,000 crores. Distribution has increased from Rs. 36,000 crores to Rs. 71,000 crores. This is an evidence that the regular business is flowing and we are not seeing any kind of challenge in taking up these projects by the state sector since these projects have come with the DPR and these have been duly appraised.
Now that the RBI project financing norms have come into play - was that the impact we saw in provisioning this time, or is that something we will see in subsequent quarters?
Actually, that is coming into effect from the 1st of October. It is not going to have much of the effect on the balance sheet for the Financial Year FY '26. That will be applicable on the new project sanction and to be documented post 1/10/2025. So, that is not going to make much of the effect on my balance sheet for the Financial Year '25-'26.
Apart from the Kaleshwaram account, for the other Stage-2 assets - does the company foresee any risks over there, or are they largely contained?
No, we don't see any kind of risk associated with them. In some of the cases, that is Teesta Urja and the O2 Power, these two cases are concerned, they have been regularly making the payment. In the case of O2, their rating was not available, that is why we have placed it in the Stage-2. And as far as Teesta Urja is concerned, that is a restructured asset. TRN is again a restructured asset. So, as per the RBI provisions, we have to keep it in the Stage-2. And for the rest of the assets, these are the government projects where we are regularly getting the repayments. Sometimes what happens, it goes beyond 30 days, so that is why we have to place it in Stage-2. But we are not seeing any kind of challenge or any kind of difficulty in recovering these amounts.
What is your Stage-2 number as of September 30th? And how did Kaleshwaram resolve - was it moved to the state government?
Total are of Rs. 16,112 crores, of which AP Rayalseema is Rs. 740 crores, TSWRIDC is Rs. 9,700 crores, Teesta Urja is Rs. 3,300 crores, TRN Energy Rs. 1,000 crores, and XL Xergi - O2 Power is Rs. 1,200 crores. So, total is around Rs. 16,000 crores, and we are getting regular repayments from them. Last quarter, it was Rs. 33,000 crores. We are concerned with our repayments, and the state government is making repayment to us. That is good for us. How they are making the payment, how they are making the things good for them, it is up to their business.
Can you break down the factors for the increase in provision expense during this quarter, and how much was the reversal from Kaleshwaram?
As far as the regular disbursements are concerned, we have made a provision of Rs. 371 crores in the half year, that is for the half year. And some reversals have taken place because of the re-ratings of the borrowing agencies of Rs. 561 crores. Then LGD change is minus Rs. 101 crores. Then delay in COD, we have made an extra provision of Rs. 106 crores. Then reversal on account of TRN Energy, that was Rs. 272 crores. So, overall, for H1, it is minus Rs. 490 crores.