The new reform, Ujwal Discom Assurance Yojna (UDAY), is going to benefit not just the power distribution companies (discoms), but also lenders to this sector. One such lender is Canara Bank. The bank has a total exposure of Rs 23,000 crore to this sector, of which loans worth Rs 12,000 crore are under the fair and remunerative price (FRP) scheme, says Rakesh Sharma, Managing Director and CEO, Canara Bank.Around Rs 9000 crore of loans--75 percent of Rs 12,000 crore under FRBM--are expected to be taken over by the states, he says, adding the benefits will not reflect this year. However, the losses on interests incurred this year will be compensated by release in provisions of about Rs 200 crore next year, he says.Furthermore, this move will aid Canara Bank’s capital adequacy, Sharma adds.Below is the verbatim transcript of Rakesh Sharma's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: What is your exposure to the Discoms?A: Discoms total exposure is around Rs 23,000 crore. There are good discoms which have not been restructured and that is around Rs 9,500 crore. There are other discoms where fair and remunerative price (FRP) package was done and that is around Rs 12,000 crore. So we have total exposure of around 8.1 percent. Therefore, these reforms will certainly help us and this is a good move by the government.Latha: You expect all these state governments of Rs 23,000 crore to take over the debt or do you think only Uttar Pradesh, Rajasthan, Tamil Nadu will take over? How much of the loans are likely to be taken over by the state government?A: In the notification it is very clear that they have left it to the state government. So now it is a win-win situation and discoms also will be able to clean their balance sheet, but finally it will depend on how the state government respond. However, those which have been restructured, they will certainly take it. So that will benefit to the banks also. Latha: You expect that Rs 12,000 crore will be taken over?
A: Yes, out of that 75 percent will be taken over.
Latha: That 75 percent would be about Rs 9,000 crore for you?
A: Yes.
Latha: Now Rs 9,000 crore is at the moment earning you 14 percent but it is going to earn you only 8.5 after they get taken over?
A: No. It is earning in the range of 12-12.5 percent - that is one issue. Second, this year, only by the time the agreements are finalised, it will be by February or March, so this year there will be no effect on profitability, in fact rather we will be able to release our provision which we are having on restructured assets, so that will benefit.
Next year there are few things to look in this perspective and one of them is once bonds are issued the concentration risk on Discom will reduce, so we will be able to finance more of that renewable energy and energy which is the target point. So that way we will be able to increase our advance portfolio and it will be compensated.
Latha: How much is the release of provisions?
A: It will be around Rs 200 crore. So whatever loss is there in interest, it will be more than compensated by the release of provision.
Latha: It will not be more than compensated, will it?
A: I am talking about current year but next year of course there will be some effect on interest but the benefit will be capital adequacy, so now we are making a provision of 125 percent to 150 percent. So that capital will be released, that concentration risk - that capital will be released. So those funds, we can use for our further growth. Ultimately, we have to deploy this fund, so this credit will increase and so much scope is there in renewable energy. So it's a positive impact. It is a good move and we are relived.
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