Rural Electrification Corporation’s net NPAs spike as power firms face stress

Rural Electrification Corporation Ltd’s (REC) net non performing assets (NPAs) jumped 1,303.30% in the last four years from Rs 970 crore in the financial year (FY) ending March 2015 to Rs 13,612 crore in FY2018.

The spike in NPA numbers has been due to the Reserve Bank of India’s (RBI) February 2018 circular that revised the framework for the resolution of the stressed assets. The circular said even if there is a day’s default, the account should be considered as a bad loan.

“This RBI’s circular is not applicable to non-banking finance companies like us. However, as a matter of prudence loans amounting to Rs 9,591 crore have been classified as NPA in Q4 FY18 in line with RBI circular,” said P V Ramesh, chairman and managing director of REC.

The gross NPAs rose to Rs 17,128 crore in FY18 from Rs 1,335 crore in FY2015. In FY2015, gross NPAs accounted for only 0.74% of its loan exposure. They now stand at 7.15%. REC’s outstanding loans went up from Rs 1,79,647 crore to Rs 2,39,449 crore in the same period.

As compared to FY2017 when the net NPAs were at Rs 3,234 crore, bad loans rose 320.90% in FY18.

Hence, the gross NPA levels rose from 2.99% in Q3 FY2018 to 7.15% of the total loan exposure in the fourth quarter. Had the corporation not classified Rs 9,591 crore as bad loans, the NPA levels would have been 3.14% of its total loan exposure.

Some of the companies that were earlier under RBI’s Strategic Debt Restructuring or Scheme for Sustainable Structuring of Stressed Assets and continue to be classified as bad loans in REC’s book are KSK Mahanadi Power, Indiabulls Amravati, Jhabua Power, Lanco Anpara, Dans Energy, Gati Infrastructure, Prakash Industries, Ratan India, etc.

Meanwhile, REC plans to raise Rs 55,000 crore in the current financial year.

“This would be raised from the commercial bond market (around 65%) as well as through foreign currency borrowings (around 35%). We should be taking the foreign currency route sometime around mid-Q2 to raise funds,” said Ajeet Kumar Agarwal, director (finance), REC.

In FY2018, REC had raised Rs 63,274 crore, a bulk of which came from various long-term bonds.

While sharing the company’s performance, Ramesh said that in FY2018 the loan sanctions rose 28% to Rs 1,07,534 crore year on year.