Is it the fatigue of being in the business of connecting thousands of villages with electricity for almost five decades? Or is it that banking is oh so sexy? Talk to PV Ramesh of Rural Electrification Corporation, the company spearheading the government’s various initiatives to bring power to the villages, and you realise neither is the reason. It’s a plain, unadulterated business plan of an enterprise to look at new opportunities – in REC’s case wholesale banking – as and when they come up.
“When RBI came up with this concept idea of a wholesale bank, we were quite excited about that because I believe we are well positioned to be, not so much a retail bank, but a wholesale bank. A wholesale bank that basically services the power segment or may be energy segment, we certainly would be interested as and when that comes up,” Ramesh told Moneycontrol in an interview lasting a little less than half an hour.
The Reserve Bank of India had on April 7 floated a concept paper to discuss whether there was a need for wholesale and long-term finance banks. According to the central bank’s own research, as of June 2016, commercial banks accounted for about 67 percent of the total financial sector assets in the country. Combined with cooperative banks, their share in the financial sector assets of the country was almost three-fourths.
As per RBI, due to asset quality impacts on the banks' balance sheets, there is an overall declining trend in bank credit, primarily towards services sector, industrial segment and small and medium enterprises. This is also reflected in the decline in the share of the long-term assets (assets with maturity more than three years), relative to total assets, on the banks' balance sheets.
The Report of the Committee on Financial Sector Reforms, chaired by Former RBI Governor Raghuram G Rajan, had made a notable argument that on the wholesale side, the financial sector has not been able to meet the scale or sophistication of the needs of large corporates. This scenario, thus, presents an opportunity for specialized banks to take up long-term financing of the corporate and refinancing of the MSME sector lenders within the existing banking structure.
“If the RBI calls for applications, we would certainly apply. All power companies could be our clients, all IPPs (independent power producers) and SEBs (state electricity boards),” Ramesh, an Indian Administrative Service officer of 1985 batch from Andhra cadre, said.
The reasons for the Chairman to go beyond rural electrification and look for more pastures are not far to seek. As the nodal agency to fund rural electrification projects, the company is only a few years from achieving most of its targets under the government’s Deen Dayal Upadhyay Gram Jyoti Yojna.
The scheme aims to bring electricity to all the villages in the country by May 2018 while ensuring separate feeders for agriculture and non-agriculture purposes, install meters in rural households and strengthen transmission and distribution infrastructure in the villages.
“Now, we are very close to achieving the village electrification target. We have already completed; we have crossed the 15,000 village mark, about 1035 villages are uninhabited. So, we have about 2300 odd villages to go before the deadline, the deadline is May 1, 2018,” he said.
The question ‘so what next’ doesn’t then just remain one of semantics. Sure, power is done and almost dusted. Sure wholesale banking is one new area. But a company which, to use inspiration from a cola giant, ‘eats, sleeps and drinks funding for rural electrification’ could and should surely be seeing more life in the energy spectrum. After all, India has taken the lead in adhering to the Paris climate accord and now aims to have 175 GW of green energy by 2022.
Ramesh revealed the company could look at funding companies making electrical vehicles or manufacturing batteries, those making storage systems as well as entities setting up and running charging stations.
“This (funding green or electric energy systems) is in perfect harmony with our mandate and also, this is in perfect harmony with the changing ecosystem of the business environment,” he said. He said the company had been having frequent interactions with those in these businesses and had already finetuned its financing model to suit funding for renewable energy and such upcoming projects.
Not surprisingly then, given its new focus, REC now wants a stake bigger than its current 31.7 percent in Energy Efficiency Services, a four-company joint venture implementing the world’s largest energy efficiency programme that aims to capture 15 percent of India’s current power consumption through energy efficient initiatives.
Two other companies -- NTPC and Power Finance Corporation -- also have 31.7 percent each in EESL while the fourth, Power Grid Corporation of India, has 4.87 percent. Started in 2010, EESL has turned out to be the goose that could lay golden eggs if it’s not already. It is the government’s vehicle for implementing energy efficiency programmes in the country. Naturally then, the joint venture partners are reluctant to shed their stake in favour of REC – rather three raised their respective stakes in 2016-17 at the cost of Power Grid.
“We are looking at that (raising stake in EESL). This is a collective (decision). There are discussions that are going on. We are looking at both (buying out partners or have ESSL issue new shares to REC). Others have to agree as well. We talked about a majority stake but the others are interested. It’s a good company; it’s a fast-growing company. It has a huge relevance for the future, so every stakeholder is equally interested. So, it’s easier to talk about it than (actually raising the stake)," he said.
So, while the games play out, REC is also looking at overseas markets for new businesses – be it generation, transmission or distribution. “We are at an advanced stage of discussing Nepal, Bhutan hydro projects, funding those projects. We are also looking at consultancy business in Middle East and Africa," he said.
Wholesale banking, funding green energy projects and consulting in foreign countries. The entire discussion has been on future. So, how was the company’s bread-and-butter business doing?
REC disbursed Rs 26,500 crore in the first half (April-September), 2 percent more over last year’s. In terms of sanctions, it grew 16 percent to about Rs 50,000 crore.
Ramesh revealed the targets were on track and the borrowing target could actually be raised. The company plans to float a USD 400 million bond in overseas market in the second week of December. The approval for that from the central bank is in place. This is part of the USD 1.5 billion that it plans to borrow overseas in the ongoing financial year.
“Borrowing target is Rs 55,000 crore of which USD 1.5 billion is overseas. We will actually borrow much higher. We may increase it substantially. I think Rs 65,000 crore will be more realistic (for the whole financial year),” he said. Expect a doctor -- Ramesh is one from Vellore’s prestigious Christian Medical College – to talk only realistic.
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