PFC's non-performing assets double in FY16

The non-performing assets (NPAs) of Power Finance Corporation (PFC), one of the key state-owned lenders to the sector, grew 198 per cent to Rs 7,519 crore in FY16 compared to the previous year. The company’s profits were muted, too, in the fourth quarter of FY16, due to higher provisions on account of NPAs and an increase in restructured assets, PFC said in its annual report.

Indicating the rising stressed assets in the power sector, the ratio of PFC’s gross NPAs to total loan assets stood at 3.15 per cent in FY16. The figure was 1.16 per cent in the previous year.

Thermal power projects have the largest share in NPAs, at Rs 3,428 crore. It is followed by hydro power projects worth Rs 2,698 crore, gas-based power plants of Rs 1,335 crore and Rs 59 crore worth of biomass-based plants.  PFC posted a 19 per cent fall in profit at Rs 1,260 crore for the quarter ended March 31, 2016. On an annual basis, the company posted a net profit of Rs 6,113 crore for FY16 compared to Rs 5,959 crore in FY15. Total income increased 10 per cent during the corresponding year ago to Rs 2,7564 crore.

Business Standard had reported earlier that the power sector financing was at cross roads with empty projects pipeline and bludgeoning NPAs. PFC’s loan sanction has come down by 41 per cent from 2012-13 to Rs 46,600 crore in the last financial year. The loan disbursement has shown a 27 per cent downward trend in PFC in the past four financial years.

According to PFC officials, the pipeline of big-ticket generation projects is empty. As for the portfolio of independent power projects based on conventional fuel, 18-20 Gw capacity is without any power purchase agreement. In the past five years, no generation project has achieved financial closure, according to market data.  The company said six new NPAs were added during FY16. “I am optimistic that in a couple of years, existing NPAs might get an upgrade upon resolution of policy issues by government initiatives and equity tie-up,” said M K Goel, chairman of PFC.

At Rs 1.33 lakh crore, PFC, along with Rural Electrification Corporation (REC), is the largest lender to the state electricity boards, which are now cumulatively battling debt exposure of Rs 4 lakh crore. The Ujwal Discom Assurance Yojana aims to restructure this debt by floating sovereign guaranteed bonds at market rates. It also restricts future borrowings by the states from these lenders and banks till their respective discoms turn around financials and operations.

Religare in its report in May 2016 said it expects continued pressure on loan growth and margins of PFC along with further asset quality deterioration over the next 2-3 years.

“The market has already discounted that both PFC and REC will suffer till the discoms turn around. As for generation projects, the amount of loan to these projects under restructuring tells the tale clearly. There are projects in the market for sale, but there are no takers,” said a senior power sector expert based in Delhi.

PFC’s restructured assets stood at Rs 32,260 crore as of March 2016, out of which 56 per cent were already commissioned.

“Out of the total restructured assets, Rs 11,550 crore are likely to be upgraded to standard in 2016-17 and the balance will likely be upgraded to standard asset in FY18,” said the company.

“Loans given to SEBs are under restructuring, but stressed assets close to 20,000 Mw are still facing payment issues due to pendency in operations and regulatory issues. It is indeed worrisome that the NPAs are rising and projects are not changing hands despite being on sale. The whole idea is to wait for the demand to pick up,” said another power sector analyst.

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