NIM, spread likely to improve in FY13: PFC

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NIM, spread likely to improve in FY13: PFC

Satnam Singh, CMD of PFC said net interest margin and spread are also likely to improve in the next financial year with RBI putting a full stop on lending rates.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Power Finance See previous management interviews See what other Experts & Brokerages are saying about Power Finance Power Finance BSE | NSE 30/05/12 Are Mutual Funds betting on Power Finance?

Power Finance Corporation reported a net profit of Rs 1,108 crore in the October-December quarter of FY12, a massive growth of 68% as compared to Rs 659 crore in a year ago quarter.

Growth in bottomline was led by strong forex gain. Commenting on the results, Satnam Singh, CMD of PFC said that the company's loan asset growth rate has been about 28% so far, which is likely to be maintained going forward.

Singh added that net interest margin and spread are also likely to improve in the next financial year with RBI putting a full stop on lending rates.

Below is the edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying video.

Q: Before talking on your net interest income trends, could you throw light on your NPAs wherein absolute terms, it shot-up to nearly Rs 600 crore versus about Rs 200 crore. Is this mostly because of the Konaseema power plant and what is it that you expect to see in terms of the NPA trend over the next few quarters and the NPA level itself?

A: During the October-December quarter, Konaseema was added. Our lending to Konaseema is about Rs 395 crore, and because of that, the NPA level has gone up to 0.45%. But this is primarily because of non-availability of gas, and now that the Prime Minister's office has constituted a special committee of secretaries to look into the supply issues, I think this issue will be resolved shortly.

Q: Your net interest margins have also slipped this quarter by about
12 bps. Do you see this as a trend going forward and could you take us through why margins are declining?

A: I want you to look at the business growth. Disbursements during the quarter have been higher by 36%; loan asset growth is 28% even though people talk about lot of negative things in the power sector.

Our total income has grown by 23%; our profit after tax has gone up by 68% for the quarter. Net interest margin is lower at this point of time because RBI has been raising interest rates frequently. Even though on a yearly basis, we have matched our assets and liabilities but because of the intermittent raising of interest rates, the margins are slightly lower for the quarter. However, since RBI has now put a full stop to lending rates, I think these margins will come back.

Q: You were talking about business growth but fresh loan sanction with the power generation segment has gone down in this quarter, has it not?

A: Yes, sanctions are down but if you look at the yearly target, we are quite comfortable. Yearly target is about 36,000 crore, and up to December, we have done about 36,000 crore so there is no issue in that. But coal supply, gas supply and environment clearance are issues which are getting resolved shortly.

Q: What is it that you would hold out in terms of targets for the next financial year both in terms of growth on the net interest income and what does that translate into in terms of disbursement growth?

A: Our outstanding sanctions today stand at about Rs 182,000 crore with yearly disbursement of Rs 35,000-40,000 crore. So that is fairly a good indicator of the growth rate, which we will be able to maintain. In the current year, our loan asset growth rate has been about 28% so far and we are likely to maintain that. In the next year, since the loan outstanding is pretty large, we don't see any adverse impact coming on the growth rate. Similarly, as far as net interest margin is concerned, since RBI has come to a stage of halting the interest rate increase and since interest rates are likely to come down, our margins and spread are also likely to improve in the next financial year.

Q: Do you see more such Konaseema kind of accidents happening or inclusions into the NPA list given the gas issues in the subsequent quarter and the next quarter?

A: I have already shared with you that Prime Minister's office has already constituted a special committee of secretaries, which is looking into gas supply, coal supply and environment related issues. They have been given targets for 30 days, 60 days and 90 days. Hopefully, in the next three months, all the issues relating to coal and gas supply and environment will get resolved.