No new additions to NPAs in Q2, hope trend continues: REC

REC’s restructured book has had no new loan additions during the quarter, says Ajeet Kumar Agarwal, Director-Finance of REC while sharing details on the second quarter results with CNBC-TV18. He expects provisions also to remain around current levels in the upcoming quarters. 

Incremental disbursements on existing projects have led to the 7 percent quarter-on-quarter growth in restructured book, he adds.

The company has not added any new non-performing assets (NPAs) either and Agarwal expects no surprises on that front in the coming quarters.

Considering the current momentum in domestic rates and declining costs of borrowing, he pegs the net interest margin to be around 4.5-4.6 percent by the end of FY17.Below is the transcript of Ajeet Kumar Agarwal’s interview to Mangalam Maloo and Sumaira Abidi on CNBC-TV18.Mangalam: Your restructured book, that was up 7 percent quarter-on-quarter (Q-o-Q). What is the probability of this slipping into non-performing assets going forward?A: As far as our restructured books are concerned, there is a growth of around 7 percent with reference to the previous quarter. But there has been no new additions to the restructured loan book. This is on account of the incremental disbursement which we have been making on the existing projects. And we do not anticipate any new loans to be restructured in the next half of the current financial year.Sumaira: What about your loan growth itself? On a year-on-year (Y-o-Y) basis, there is just a 1 percent rise out there. You expect it to remain muted through the rest of FY17 or can we at worse, even expect some decline?A: This loan book growth of 1 percent that you have been referring to is only on account of the Ujwal DISCOM Assurance Yojana (UDAY) funds which we have received. Almost Rs 30,000 crore has been received under the UDAY scheme. Otherwise our loan book would have shown a steady increase of 12-15 percent and this is the loan book, still we have a 1 percent growth with reference to the similar quarter of the previous year. Accounting for the amount which we have received around Rs 35,000 crore in total, loan book growth would have been much higher.Mangalam: You were talking about increase in restructured book coming on account of disbursements, but if you look at both your disbursements as well as sanctions, they have been much below what the street was estimating and much below your historical numbers as well. Can you throw some colour on why that happened and what one can expect for FY17 going forward?A: As far as our sanction growth is concerned, you would see that there has been a growth of 16 percent with reference to the previous quarter, which is quite a good number with reference to the status of the power sector going on. Regarding the disbursement also, we have made a robust growth of 12 percent and we continue to have this kind of disbursement growth in the next second half of 12-15 percent also.Sumaira: Credit cost too remains high. What is the trend that you see going ahead?A: Credit cost this quarter, we have not added any new non-performing assets (NPA) and we hope that this trend might continue and we do not see any big surprises in these kinds of things.Mangalam: Does that mean provisions are likely to be higher or will they continue to be higher going forward?A: Not exactly higher, maybe on the similar levels.Mangalam: But what kind of momentum can we expect as far as your net interest margins (NIM) are concerned?A: NIMs are concerned, as you must have noticed, in the market, the domestic rates have started coming down and the cost of borrowing is definitely showing a declining trend. There is an ample scope for us to adjust our lending rates. Today, we are working at 4.84 kind of NIMs today and going forward, by the close of the financial year, 2017 we hope that we should be working anywhere between 4.5 and 4.6. This is I am considering in the view that we might be adjusting our lending rates considering the fact that cost of borrowing is going down.