Andhra Bank has successfully restructured about Rs 2,000 crore of its loans to Andhra power distribution companies, the bank’s CMD CVR Rajendran told CNBC-TV18.
“50 percent of [the loan] is to be converted into long-term bonds issued at a rate of about 9.85 percent,” Rajendran said.
Also Read:Loans to power distribution cos at Rs 10,000 cr: UCO Bank
The bonds were issued with a state government guarantee. However, similar instruments in the market have been yielding 9.30-9.35 percent, he said, adding that the sale of the bonds would not just result in reduced power exposure for the bank, but also result in profits.
Andhra Bank, which has exposure to Andhra state electricity board to the tune of Rs 1,000 crore, sees power tariff increasing post 2014 elections. The bank’s exposure to Discoms stands at Rs 10,000 crore.
Andhra Bank has received Rs 200 crore from the government via allotment of 3 crore shares on a preferential basis, allotted at Rs 66.59 per share.
The bank posted a positive growth in its net interest income (NII) & net interest margin (NIM) in Q2.
For Q3, yield on investment is expected to normalise, hence NIM is expected to be subdued in the second half.
Below is the edited transcript of CVR Rajendran interview on CNBC-TV 18
Q: Could you set a background for us. What is the exposure that Andhra Bank has to the Andhra Discom and overall to the power sector?
A: Our power sector exposure is around Rs 10,000 crore. In Andhra there are four companies; power distribution and power manufacturing together and we have over Rs 2,000 crore of an exposure to all the four companies.
Q: What update you can give us on the restructuring of the Andhra Pradesh Discom loans?
A: It is already done. The last date fixed was December 31, 2013. In last week we agreed for restructuring and 50 percent of it is to be converted into long-term bonds which comes at a good rate, about 9.85 is the indicative rate given to us as per the formula and remaining amount is restructured over a longer period.
Q: What will be the impact on your profit and loss (P&L)? Will you provisioning go up, will your non-performing loans (NPLs) come down?
A: NPL will come down to the extent of our net present value will be provided during the current year but bonds at 9.85 will be a good opportunity in the market because today state government bonds are going around 9.30-9.35 yield. These bonds with state government guarantee at 9.85 will be picked up by the provident fund; will be much easier and good investment. January-February-March are the months in which PFs come in a big way for investments in these months. Therefore, I am confident that we will be in a position to sell these Rs 1,000 crore of bonds at a profit and reduce our exposure on the Discom companies.
Q: Your overall exposure to the sector is Rs 10,000 crore and your exposure to the Andhra Discom is 2000 crore. Do you have exposure to any of the other Discoms – Rajasthan, Haryana and Uttar Pradesh?
A: We have for Rajasthan and also a small portion for Haryana but most of these Discoms already gone under restructuring exercise.
Q: Have you sold off the bonds or should we expect some bit of margin improvement in Q4 because you will be in the money?
A: If we are able to sell off, we will be in a bit of improvement in the margin to that extent.
Q: We have seen a couple of state governments offering subsidies on power bills. Haryana chief minister has clearly said that there will not be any tariff increases for this year. Of course the state government goes into polls probably sometime soon later this year. What is your sense? Do you think banks will be able to drive home? Will banks be able to tell the discoms that unless you raise tariffs we will not give the next tranche of loans? Is that politically possible?
A: It should be possible. The way in which the banks are suffering the discom companies today we will not take any further exposure unless the telecom companies maintain their promises. I am sure once the elections are over better sense will prevail and most of them will go for increase in the tariff later.
Q: What has the past experience been with regards to the subsidy payouts itself? Have there been any problems or are you worried that there could be any defaults in terms of the subsidy payouts?
A: What we have seen in the utility companies cash flows are not a problem. Most of them were meeting the obligations on due date as per the schedule. Never there was a delay in servicing the interest in any of the discoms. So I do not think there is any problem in servicing in future also. Only thing is if the further loans are not given to fund their losses, to that extent they may have a cash strength. So I think they will tow the lines which the banks have put in.
Q: What are the conditions you all have put in, one that you should keep increasing tariffs in step with raw material cost, is it? Are bank loans generally conditional on the subsidy money also coming in on time?
A: That condition we have not added, but that is implied, otherwise they will not be in a position to service the loans. These are budgetary allocations, so if it is a budgetary allocation most of the governments are providing the budgetary allocation and they are paying it.
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