Expect 25% loan growth next year: REC

In an interview with CNBC-TV18, HD Khunteta, Director Finance, Rural Electrification Corporation (REC), spoke about the latest happenings in his company and sector.

Below is a verbatim transcript of his interview with CNBC-TV18's Anuj Singhal and Latha Venkatesh. Also watch the accompanying video. Q: We have seen a huge rise in commercial paper (CP) rates, CD rates, money markets rates and ofcourse a round of rate hikes both deposits as well as base rate and prime lending rate (PLR) by banks, how much has the cost of money gone up for you? A: Recently, the CP rates and interest rates have gone up. If we compare with the previous year then the CP rates, which were at around 5%, it has gone through around 9% for six months. But we have gone for long-term borrowing. We have raised the bonds at around 8.75% from 15 years, ten years at 8.80%. In some of the cases, we have swap to the link to the G-Sec benchmark with reset after one year or three years or five years. We reduced the cost to around 7.40%. So, one side, we have gone for long-term borrowing. Another side we have also reduced the cost of borrowing because it has been fixed at around 7.40. Our asset side is also will reset after three years. So, we have shifted to floating rates. Overall, borrowing for the first nine months is around Rs 17,000 crore and we have borrowed at average cost of around 7.50%. This is one of the best in the industry. We are able to maintain the spread of around 325 bps even in such a rising of interest period. So, one can see that our efforts are to have the lowest cost of borrowing, but the fact remains if in next three months, the interest rates are going up then there maybe some pressure on the margin, but it depends on the market conditions also. Q: What about loan growth estimate because that is something that atleast one of the influential brokerages has cut quite significantly, in your sense do you think you would see significant pressure over there? A: Loan book growth will be maybe around 20-22% against our guidance of around 25%. It maybe increased to around Rs 80,000-81,000 crore against the previous year figure of around Rs 66,000 crore. Next year, I feel that the growth will be much better as far as the disbursements are concerned and the loan book is concerned. So, our guidance by FY12 should be around Rs 1,05,000 crore. We hope that it should be. And that shows the growth of more than 25% in next year, around 20-22% in the current year. _PAGEBREAK_ Q: Do you expect that your loan growth could get kind of depressed because environmental clearances are becoming tough? We saw a burst of activity in the power sector, there are some who are expecting some kind of a tapering of activity in the next one year or so, in terms of demand from that sector. More importantly, some of them have also been able to get some access to cheap money from abroad through the NBFC route, would you therefore say that you will be able to pass on all the increased credit cost that you face or will you be able to pass on just about a half of that? A: There are number of cases where the coal mines have been allotted to the private developers, there could be some delays, but as per REC is concerned, we put pre-disbursement condition that without all clearance we will not disburse the money. So, atleast that cannot become non-performing asset (NPA). So, now the matter is already at the highest level as far as the environment clearance is concerned. Our outstanding commitments are more than Rs 1,30,000 crore. So, even we assume that for around 20%, there maybe some delay. Even then the growth should be at around 25% as far as the disbursement part is concerned. Second part is as far as the ECB is concerned, I think so far only the few companies have been able to raise the money through ECB route. Few companies like Tata or Reliance have got the guarantee from EXIM for raising the ECB. Some companies can raise, but most of the companies because they don