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PFS to raise lending rates by at least 150bps to lift profit

PFS to raise lending rates by at least 150bps to lift profit

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  • PFS has set its base rate at 10.75%, and will focus on lending to high-yielding borrowers at 12.5-13%
  • The NBFC will sell old loans under the previous lower pricing threshold and lend to higher yielding products

PTC India Financial Services Ltd (PFS), a non-banking financial company (NBFC) that lends primarily to the thermal power and renewable energy sector, will raise its marginal lending rate by at least 150 basis points (bps). The NBFC will sell old loans under the previous lower pricing threshold and lend to higher yielding products to boost profitability, Pawan Singh, managing director and chief executive, PFS, said in an interview.

“We’re trying to reprice ourselves and we are moving to our own pricing regime,” said Singh.

“Earlier we had an MCLR (marginal cost of funds based lending rate) model to price loans, on which we gave borrowers a discount. There was no threshold to the discount and anything over our cost of capital (was acceptable). However, now we have set the base rate on the basis of our borrowing cost, the asset-liability match, the overhead costs, and standard provisioning, and we won’t lend below the base rate,” he said.

PFS has set its base rate at 10.75% and will focus on lending to high-yielding borrowers at 12.5-13%, accounting for a risk premium over the base rate. Singh said the previous MCLR that PFS lent at was 9.4-10%. Now, with the higher base rate, PFS aims to sell about ₹600 crore of its loan portfolio that falls below its minimum base rate standard.

“Of our loan portfolio of about ₹13,400 crore, about ₹600 crore falls below or near the base rate,” Singh said. “We will sell this to India Infrastructure Finance Co. Ltd (IIFCL), Tata Cleantech Capital Ltd, and Indian Renewable Energy Development Agency Ltd (Ireda) by the end of the month,” Singh said.

The move by PFS to raise lending rates comes at a time when the central bank is keen to infuse liquidity into the financial system by lowering interest rates. On 6 June, the Reserve Bank of India (RBI) cut interest rates by 25bps for the third time in a row. It also changed its monetary policy stance from “neutral” to “accommodative”, with the repo rate at 5.75%, to encourage corporate lending.

However, it will take time for the lower rates to trickle down from the banking system to the economy.

PFS reported net profit of ₹36.76 crore for the last quarter of 2018-19, against a loss of ₹264.68 crore in Q4FY18. The company will continue focusing on boosting profitability as the loan book growth is not aggressive in FY20, Singh said.

“We are focusing on the bottom line and not so much on loan growth. We propose to increase our loan book by 15% in FY20, revenue by 22-23% and bottom line (net profit) by 35%,” he said. To this end, it also intends to down-sell and churn its portfolio and increase fee-based income from underwriting loans.

PFS also plans to raise ₹600 crore from a partial credit enhancement guarantee in June, making it the first NBFC to do so. State Bank of India will be the guarantor in this case. This will be the first tranche of a total of ₹2,000 crore that it hopes to raise in FY20 via this route, besides another ₹500 crore through external commercial borrowings.

The cost of borrowing of PFS has increased by 50-60bps in the last six months after the Infrastructure Leasing and Financial Services crisis hit the NBFC sector.

“Since the new government has been elected, there is a correction in bond yields and now the RBI has given an interest rate cut as well. I think interest rates peaked in the past. Now we will see a gradual decline,” he said.

PFS is also setting up India’s first infrastructure development debt fund, solely for renewable energy projects, in partnership with UK Climate Investments Llp and the department for international development (DfID), UK. It will start with an investment of ₹400 crore from sponsors, enabling it to raise bonds of up to ₹2,000 crore.

Source: livemint
Anand Gupta Editor - EQ Int'l Media Network