REC has lowest non-performing assets as proportion of its loan book amount: PV Ramesh, REC
Over the last 48 years we have undergone a major transformation and the big turnaround came in 1998 when REC became a non-banking financial institution and was given the mandate to provide financing for power sector development, especially in the transmission and distribution segments, and later in 2003, the Reserve Bank of India licensed REC to be the infrastructure financing company. So that is where it is a big turnaround where under the Ministry of Finance of Government of India REC continued its journey of supporting the power sector development and the big transformation came again in 2008 when we started to trade publicly and then gradual disinvestment has reduce the stake of the Government of India to 58.8% and we have been trading in the market since 2008. However, for the last 23 years REC has been judged one of the excellent public sector undertakings. It is a navratna company.
Let us go deeper into the renewable financing business. How much the current demand can be effectively and profitably financed? What are some of the key challenges that you face?
PV Ramesh: The renewable energy is on a great momentum at this moment. This is a major transformation that is happening as we speak on the technology front. We have seen before our eyes within a short period of time the cost of power generation particularly in the solar sector and even in the wind has come down substantially now this makes it cheaper for the power to be provided to the consumers. So this technology transformation and then lowering of the price is one area in which we are constantly required to adjust ourselves to these evolving technologies. In terms of pricing and in terms of structuring our financial products to support this and the new technologies in this arena like the storage infrastructure, storage technology, the electrical vehicles all these have an impact in terms of what an appropriate technology should be sourced and how we will structure our financing products to suit these potentially disruptive fast evolving and transformational technologies.
How is it that you see cash flows of SEBs and interest payments shaping up post to their bonds?
PV Ramesh: We are seeing from across the country a phenomenal improvement in terms of the performance of the distribution companies. The interest service burden of the distribution companies cumulatively across the country has come down by about Rs 15,000 crores a year and we have seen that cost of power is gradually declining. Several discoms are purchasing power at a much cheaper rate than they used to purchase earlier and that has brought down the cost overall in the past eight months or so by almost about Rs 1,800 crores. And in addition, we see a reduction in the aggregate technical and commercial losses, I mean there is a reduction of about 1% though it is modest but several states have achieved far reaching significant reduction in losses. There is also a significant reduction in terms of the cost of purchase and the revenue recovery that alone is accounting for about Rs 1,500 crores of savings to the distribution companies and then above all we are seeing a push towards a great billing efficiency and greater revenue recovery.
There is a lot of conjecture on asset quality troubles within your sector. With the power sector contributing the highest NPAs in the industry and the CAG observations as well indicating that much of the cleanup is still in the pipeline, talk to us about the outlook and how will you highly invest the concerns on maintaining asset quality?
PV Ramesh: I would like to reiterate that these are extraordinary times for the power sector that does not mean that there are no problems. I mean there are indeed certain stressed assets. There are various reasons why these assets are stranded. There are various measures that are being taken by the financial institutions and the government in this regard. There are number of policy initiatives that have already been put in place like Shakti and other schemes.There are new policies perhaps or in the offing to mitigate these issues. But speaking for myself and that is speaking for the REC, REC has the lowest non-performing assets as a proportion of its loan book amount, all the peers in this segment. We have a gross NPAs of 2.6% and the net of 1.7%. And this is at end of first quarter last year it was 2.5%. So there has not been a significant increase in the NPAs. However, we are concerned like everyone else. We are minimising the adverse impact of non-performing assets. I would like to assure everyone concerned that we have been following all the stipulations and requirements of the regulators.