No real pick-up seen in investment cycle: IDFC

Latha: That is still in will be isn’t it? We spoke to the Coal Secretary he spoke about the doubling of output from Coal India but even the railway lines, new lines to evacuate coal all come after a couple of years. So, in the interregnum will there be more bad assets I mean if it is one or eighteen months away immediately do you think that we are going to see an increase in infrastructure bad loans before the decrease?A: There are frameworks that have been worked out in order to try and solve for some of the issues that we are talking about including pass through of imported coal or a gas pulling mechanism by which these plants can at least fire at a minimum plant load factor (PLF) that would keep them productivity in terms of servicing debt. So, my hope is that those solutions will result in these assets not becoming non performing assets (NPAs).At a broader level my view is that given where we are in terms of the infrastructure deficit in the country and the focus of the government to get infrastructure development expatiated and to solve some of the issues that we are talking about. I don’t envision a scenario where all the powers, assets that we are talking about become bad assets. That’s just not the likely outcome because if that were to happen the systemic risk surrounding that is so great that I don’t think we can then hope to get to the 7-8 percent of gross domestic product (GDP) growth or to fulfill our ambitions surrounding manufacturing in India unless we get the power sector and the infrastructure sorted out.So, I certainly don not believe that is the likely outcome I am quite optimistic that this government will deliver on solutions to fix some of the issues that we are talking about. It might take a bit longer than what people expected but I don’t think that is going to result in a huge mass of non performing assets in the power sector.

Sonia: What about the company itself? In the near term or rather in the medium term should we expect the company to report muted earnings given the fact that you have continuous operating expenses towards your banking transition and you have adopted a conservative provisioning policy as well? Just take us through what to expect from IDFC say in the next two to four quarters?A: There isn’t any new project development in infrastructure per se. The last couple of years our growth has really come from refinancing operating assets rather than lending to new assets. I do believe that within the infrastructure space the roads and the ports sector will probably restart first. Renewable sector has been quite active already and then the thermal sector will come at last once all the issues that we are talking about gets sorted out.In the mean time our growth will obviously be muted. We have guided to flattish growth we have to manage our balance sheet transition in a way that once we become a bank we are compliant with all the norms surrounding priority sector requirements and Cash reserve Ratio (CRR), Statutory liquidity ratio (SLR) etc. so, our transition over the next 12 months has to do with managing the balance sheet size such that the bank is complaint with all the reserve Bank of India (RBI) regulations.

Latha: Have you heard from RBI about that exemption at all?A: Not yet.Latha: Are you getting enough from the investors you speak with domestic and foreign that they will be willing to lend to the broken down infrastructure companies? Are they seeing enough faith in the India Infrastructure story to lend to these companies and help them repair balance sheets?A: Couple of things one is I do believe that the sentiments surrounding India is very positive. I do believe that over the next 12 months we will see a lot more reforms, a lot more announcements from the government that will give people a lot more confidence about investing in India. The sentiment surrounding India whoever I have spoken at the conference has been positive. I should tell you that the conference is very well attended which is also a sign of the fact that people are bullish and are looking for investment opportunities. We have more than 200 corporate and more than 200 domestic and foreign investors at this conference and more than eight and a half thousand meetings that are going to take place over the next two and a half days surrounding various opportunities in India. So, that is a reflection of the interest in India and the interest to identify investment opportunities in India. As far as the infrastructure sector is concerned as I said people are hopeful that some of the resolution mechanisms that have been proposed will come through and will sort out the issues surrounding the power sector which is really the largest problem that we are talking about. Most of the other areas in infrastructure are relatively stable so once we see some resolution surrounding the power sector it will give us significant impetus to growth as well. So, our investors are jumping in today to buy power stocks may be not but are they hopeful that they will be a resolution surrounding power sector and that growth will come back absolutely yes. We will have to just wait a little bit to see how these mechanisms that the government is talking about fall in to place.