Satnam Singh, CMD, Power Finance Corporation Limited (PFC) said they are looking at buying stake in a bank to ensure their payment security mechanism. He believes, PFC is on track to fulfil the RBI‘s 0.25 percent criteria for provisions in three years times.
State owned Power Finance Corporation reported a marginal rise in net profit to Rs 1,117 crore in the third quarter of FY13 from Rs 1,108 crore in the corresponding quarter last year. The company’s net interest spiked up 41 percent to Rs 1,548 crore from Rs 1,097 crore a year ago.
Satnam Singh, CMD, Power Finance Corporation (PFC) said they are looking at buying stake in a bank to ensure their payment security mechanism. He believes, PFC is on track to fulfil the RBI's 0.25 percent criteria for provisions in three years times. Besides, Singh feels their net interest margins have peaked at current levels.
Here is the edited transcript of the interview on CNBC-TV18.
Q: You have been quite enthusiastic about the bank license and you must have read some of the recent norms and comments from the finance ministry, how do you rate your chances?
A: I think the new banking licenses are going to be for the private sector and I have never said that we will be applying for a new bank license. What I had said was that we will be exploring the possibility of taking a stake in banks so as to ensure that our payment security mechanism is not dependent on third party banks.
Rather, we will have that payment security mechanism that is escrow as well as trust and retention account in a bank in which we have stake. Once this issue, the guidelines etc are finalized, we have a plan to take it up with the Ministry of Finance and see whether we can take a stake in one of the banks or not.
Q: What is it that you expect to see for the rest of this year both in terms of how much you would have to provision and whether this asset quality will continue to improve?
A: If you see our December results, the gross non-performing assets actually have come down from 0.97 percent to 0.92 percent. Accordingly, the net non-performing assets have come down from 0.86 percent to 0.82 percent primarily because our asset book has gone up to Rs 1,48,000 crore.
Now Reserve Bank of India has been asking us to create a standard provision of 0.25 percent against standard assets. We had not done it so far on the assumption that we have a very high level of almost equivalent to 1 percent of our book as reserve for bad and doubtful debt. Against that reserve, we have not written off even a single rupee.
Now that our profitability in the current year is very good, we have decided to create provision against standard assets at the rate of 0.08 percent per year. We will complete that 0.25 percent, which is the requirement of RBI in three years time. This 0.08 percent for the first nine months, that is 0.06 percent works out to Rs 92 crore. We will have to make a provision for another Rs 30 crore in the last quarter, so as to match what we have committed to RBI.
Q: Your margins have expanded to 4.6 percent in the current quarter. Is there more headroom you see or you think you are topping out here with margins?
A: Our capital adequacy has gone up compared to the last quarter, primarily because of the commissioning of power plants during the year. RBI has come out with guidelines that 'as and when power plants are commissioned and the ones which are funded by us are commissioned, then the risk comes down from 100 percent to 50 percent.'
It is because of that the capital adequacy has gone up in our case to 18.10 percent. Higher the capital adequacy, higher will be the margins. Going forward, since our growth rate is in the range of 25-30 percent and a very limited number of plants are likely to be commissioned in the last quarter, I think the margins have expanded.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.