REC Limited (RECLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to REC Limited Investor Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanket Chheda from DAM Capital Advisors. Thank you, and over to you, sir.

Thanks, Riya. Hello, and a good morning to all of you. Thanks for joining this call. We have with us the entire management team of REC today. And the call will be driven by Mr. MD sir, which is Vivek Kumar Dewangan, who is Chairman and Managing Director; and also Vijay Kumar Singh, who is Director of Projects. Without further ado, I'll hand the call over to Mr. Vivek Kumar Dewangan for his opening remarks on the strategy and on the results that we just went by. Followed up -- we'll follow that up with the Q&A session. So over to you, sir.

Thank you, Sanket. Good morning to all the participants from India, and good afternoon to all the participants from Southeast Asia. I'm very happy to share with you the fabulous annual results of REC for the financial year 2023, '24. Our accruals have seen an increase of 34%. We sanctioned projects worth $43 billion in the last financial year as compared to $32.2 billion, which were sanctioned in FY '23. The disbursements have also grown by 67%. Our total disbursement stood at around $19.3 billion last financial year as compared to $11.6 billion in FY '23. Our loan asset has grown by 17%. In FY '23, our loan asset had grown by 13%. Now total asset under management is about $62 billion. Here, I would like to make it very clear that REC management and Board have decided to have a clearcut roadmap, and we are targeting to double our asset environment to about $125 billion by the year 2030. And if we are able to sustain this growth of 15% to 20%, we'll be able to be. In case our growth momentum is more than 70%, we'll be able to reach this target of $125 billion asset under management by the year 2029 itself. The interest income on loan asset has grown by 19%. Total interest income on loans [ to there ] was $5.5 billion. Total income has also grown by 20%. The one significant feature is that our profit after tax has grown by 29%. Our total profit after tax at the end of the financial year was about $2.12 billion -- sorry, our profit before tax. And our net profit has seen an increase of 27%. It was about $1.68 billion. The management has made a very conscious effort to reduce the cost of funds. We were able to bring down our cost of funds by 15 bps from 7.28% in the last financial year to 7.13% in FY '24. The spread has also improved by 41 basis points from 2.45% to 2.86%. The net interest margin has seen an increase of 19 bps from 3.38% to 3.57%. Our return on net worth was about 22.17%. You might have observed that our market capitalization has increased by 290% in the last financial year. One more distinguishing feature for the last year was our approval for renewable energy projects increased by 533%, and we covered the entire ambit of green hydrogen, green ammonia, pumped storage hydro projects, large hydro projects, solar module manufacturing, solar power plants, electric mobility, wind turbine manufacturing, wind power generation and hybrid solar and wind. Going forward, we are targeting to increase our renewable energy portfolio to about 30% to about -- right now, our renewable energy portfolio is about 7% of total assets under management. It is about $4 billion, about $4 billion is our asset under management under renewable projects. We are trying to increase our renewable energy portfolio by 10x to about $40 billion by the end of 2030. Why we are so content that we have a huge pipeline of projects. Last year, we had sanctioned projects worth INR 136,000 crores. And in the current financial year, we have a huge pipeline of projects amounting to more than INR 175,000 crores. Since the turnaround time for renewable energy project is higher and it gets commissioned over a period of 2 to 3 years, we see that a lot of disbursement will happen from renewable energy portfolio. One more thing that Government of India has allowed us to diversify into non-power infrastructure logistics in the month of October 2022. In FY '23, we had sanctioned in total logistics projects worth about $10 billion. And in the last financial year, we had sanctioned project worth $5 billion. Our asset under management under non-power infrastructure logistics is about $6 billion. And we are anticipating that our total asset under management from noncore infrastructure and logistics will see fourfold growth to say about $25 billion by the end of 2030. One more thing has happened that Government of India has decided that this renewable energy is intermittent in nature. And we don't have natural gas resources. So the base load will come from coal-based capacity. The additional coal-based capacity would be required in brownfield projects only. Of that, about 94 gigawatt capacity has been identified to be brought in by the year 2032. In the next 8 years, all the approvals for this additional coal-based capacity will happen next 2 to 3 years. But there also, we see a huge potential for REC, We'll be able to share for 30% to 40% of this coal-based capacity, additional capital would be coming in the next 8 years. Overall, power sector is on upward swing. Last year, power demand increased by 8%. And in the current financial in the last month in April, power demand has increased by 11%. With the introduction of [ pre-bond ] distribution sector scheme and late payment surcharge rules by the Ministry of Power, a lot of improvement in distribution sector is visible -- clearly visible. The AT&C losses came down by 5% in FY '23, and for FY '24, the final figures would be known by the end of June. We see a huge improvement in AT&C losses. Government department deals are getting paid in time. The legacy Government department deals and legacy [ subsi ] deals are being paid in equal monthly installments. So much so that now the current subsidies are being paid by the state governments to the distribution companies quarterly in advance. This is overall increasing the operational and financial efficiency of distribution companies. The dues to the generating companies and [ participating ] companies have become very regular. They are paying and the legacy deals under late payment surcharges, would be clear in the next 2 to 3 years. After this [ revenue distribution ] scheme gets over next 2 to 3 years, there'll be modernization scheme, which is being planned by [ Mr. Chipar ]. And I forgot to tell you that prepaid smart meter, which is part of RDS, is going to play a very significant role in improving the overall financial health of the distribution companies in the country. After [ RDS] period is over and the modernization is over the next 4 to 5 years, country will still require a lot of CapEx for upgrading the infrastructure, because distribution infrastructure all the poles, wires, the distribution platform is quite old, 40 to 50 years old. So there is a need for a continuous upgradation of distribution infrastructure. So we do see a business potential that distribution sector is requiring a good business opportunity in the next 10 to 12 years. Going forward, our vision is very clear: by the year 2030 we would like to double our asset under management to about $125 billion, 30% of it will come from renewable energy segment, 15% to 20% will come from non-powered infrastructure logistics, and 50% to 55% of asset under management will come from conventional coal-based generation capacity, distribution and transmission sector. With this opening remark, may I request Sanket to take the discussion forward.

Operator, you can announce the Q&A.

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Nuvama.

Sir, my first question is on this new RBI draft circular. So basically, I just wanted to know, of course, please do share your comments on the scene, but I had some specific questions which is that of your INR 5 trillion of loans, there are some loans to distribution companies which would be term loans. So they would also qualify under the RBI circular, right? What proportion of your loan book roughly would qualify as being impacted by the RBI circular? And then, if at all you've calculated any rough impact? And my second question related to the same topic is that, say you have renewable brands, wind solar plants, their tariffs are only 2, 2.5. So even if lenders were to pass on higher rates, how would they sustain? How would they meet their DSRC? And also for these renewable projects, some approvals are always pending at the time of disbursals. So how do you tackle that? Because here you are not supposed to disburse till all approvals are [ not ] in place. And that's never the case in some power and even in some industrial projects. So these are my questions, sir.

Thank you, Mahru, for asking very important question, this is a burning topic as of today. Let me first clarify that it is only draft guidelines which have been issued by RBI. We have sought comments of all the stakeholders by 15th of June. So this would be applicable to all the banks and non-banking finance companies who are involved in project financing. And this guidelines pertain to these projects under construction for which additional provisioning is proposed to be introduced for the hydro project, additional provisioning is supposed to be 5%, and those who entered in operational phase, the provisioning is proposed to be 2.5%. And those projects were commissioned and they are having positive net operating cash flow, the provisioning will be limited to 1%. But it has to be if it is in a phased manner, by 31st March, 2025 only 2% provision has to be done. By 31st March 2026, 3.5% provisioning has to be done. And by 31st March, 2027, 5% provisioning has to be done. This will be phased over a period of 3 years. Now I've stated that, as you are aware that RBC is a nonbanking finance company and we are following in their accounting standards. As per RBI's income recognition asset classification norms with additional provisioning for, NBFC is falling in this, will not be routed through profit and loss account, but the provision for the same will be done by way of impairment reserves. So our profits are not going to be affected by this stipulation. Our net worth is also not going to be affected. We have done a detailed analysis. Book value is not going to be changed. Only if it would be on our Tier 1 capital. And we have adequate capital adequacy ratio as per RBI's norm, our minimum capital ratio required is 15%, and we are having about 25.82%. For Tier 1 capital, the RBI statutory minimum requirement is 10%, and we are having Tier 1 capital to the tune of 23.32%. So it will have impact only on Tier 1 capital. That would also be in a phased manner over a period of 3 years. As you are aware that we can take exposure to a single project to the tune of about 30% of our Tier 1 capital, which is at within about INR 19,800 crores. And for a group of projects, we can take exposure up to 50% of Tier 1 capital. Right now, our exposure to single projects is normally not more than INR 15,000 crores actually. So even if this Tier 1 capital gets reduced by, say, 2,000 to 3,000, it will not impact our approval process. Now coming to the specific question asked by you that a lot of our loans are supported by the state government guarantees. This RBI guideline would not be applicable to these loans which have been supported by the state government guarantee. About 40% of our loan is supported by the state government guarantee. Then they are non-CapEx loans like late payment surcharge, liquidity infusion scheme, RBPF, revolving bill payment facilities. All these loans will not be impacted by this RBI guideline. And distribution sector CapEx, like RBPF loss reduction works, et cetera, they're all supported by the state government guarantees, so that's why they're also not being impacted. The impact will be there in the generation segment, both [ canimation ] generation and renewable energy generation. But we are going to seek -- we are going to give a detailed response to [ our dates ] within our guidelines. The interpretation about date of commencement of commercial operation, whether this will be applicable only to projects which are delayed because the [ straight ] behind draft RBI guidelines appear to be that the projects which are under construction and which are getting delayed which require closer scrutiny by the lenders and closer monitoring. So that also will seek clarification. Those projects which are under -- I do appreciate that conventional coal based generation, and this large hydro projects, they somewhat get delayed. They don't get commissioned in time. But they are -- will have to do this up to 5% provisioning by the end of 31st March 2025. But as far as our renewable energy portfolio is concerned, all of this renewable energy portfolio of about INR 35,000 crores, about [ 50% ] projects are already commissioned actually. The new project which we are sanctioning, which will be under these RBI guidelines would be applicable, it's still early days because we are supposed to give our detailed comment to RBI by 15th of June. But overall, going forward, we see that it is not going to impact adversely. In fact, we welcome this move by RBI because this will lead to closer monitoring and scrutiny of these under-construction projects.

What will be the tax implication of taking [ rya ] directly through impairment reserve, no tax deduction?

There won't be any impact on the tax per se because the tax in any case is on profit before tax. So on that, the tax implication will be there, which anyway earlier also was there. So it's only a [ cooperation ] of the profit. After that, the impairment reserve is created. And it is the [ compensate ] net worth also. It is only a buffer, which is there. It is not a pre reserve, but it is there in the net worth as such.

Got it. But sir, just a follow-up question. So basically 40% is out of the purview of these guidelines, right?

So more than. It is more than that. At project, Mr. Vijay for the clarification.

So you asked about how much of the distribution portfolio would [ have carried ] this provisioning requirement. Let me just tell you that the total book size under the distribution segment is close to 25.75 billion, out of which the CapEx which is supposed to [ attract this ] provisioning requirement is only 9 billion, which is just 35% of total distribution portfolio. So that is the implication of distribution portfolio on 65% of loan, which are non-CapEx, which are in the form of LPS and LIS, which we mentioned during [ cowertay ] will not [ obtain ] these provisions.

Next question is from the line of Avinash Singh from Emkay Global.

First question is that assuming this RBI surplus was to come in the current form, I mean [ in having onesome ], will it sort of lead to change in competitive dynamics in the lending space to the power sector [ for then when ] coming. I mean, yes, I mean, you could be comfortable in your position and your sort of focus, but will it lead to some banks, I mean who some are currently present, kind of withdrawing or so going slow in the power sector loans. So I mean, how will that play out? And the second part, if at all, the sort of the impact that is going to impact -- having impact on your own sort of capital alone. Will sort of you be looking to pass on some prices or to our capital P&L impact but definitely, it is going to impact your P&L. So will there be some kind of some [ translational ] costs that we pass on to the borrower?

As far as the banks are concerned, they are not following the Ind AS. So in that any disclosing which is required will be routed to the profit and loss account. So they will be hidden as far as the banks are concerned. So in that case, it may not be so, but some of that may have to be passed on to the borrower, the impact of that. Whatever the increase is there, what the impairment is which we are required [ to pay across the bench must pay ] also. So there some additional impact can be there by the increase in the lending rate.

Yes. So in that scenario, do you see sort of benefiting from that competitive dynamics changing? I mean, if at all the banks are passing some reckoning period will you be also sort of looking to benefit from that? And if at all the banks were sort of [ going smooth you ] in the power sector loan will see some uptick.

Thank you, Avinash, for asking this question. Yes, we do see that we -- there will be a scenario where we benefited, some banks may withdraw from this kind of competitive atmosphere. They might not [ go for ] project financing.

Next question is from the line of Gaurav Agrawal from Nine One Capital.

Sir, one part is the existing [ entity ] and I need to ask on the revised guideline. Can you recall very well on the existing AUM. My question is more related to the incremental book on the generational side. So how do you think the industry players are going to react to it? And also for yourself because accounting treatment for the existing loans can be [ limited ] from the impairment reserve. But what about the incremental loans? What will the accounting happen for the loans which we are going to write from today onwards? [ And that which ] on the date this guidance becomes [ more ] effective?

For the incremental loans also the same position is there. We have to just create the provision as per the IND AS and as per the direct norms of the Reserve Bank of India. So the differential which is there, a provision which is required as per direct norms and that as per IND AS, that has to be created by way of the impairment reserve, by way of appropriation of property. So as such for the incremental loans also as well as the existing loans also, the same treatment will be there.

Okay. But sir, for the incremental loans will it be impacted by [ simability ], pricing a loan a bit higher just to account this change in provision?

Sanjeev, will you [ tend to this ]

Yes. We'll see that actually, some newspaper reports also comes and banks also making the presentation to RBI, trying to request the RBI to reduce this additional provision of 5% to say to 1% to 2%. But we'll have to see the final guidelines actually. But yes, we'll have to pass on some this -- we'll be able to pass on to the borrower. But another -- the silver lining mean fact is that, our cost of borrowing is going to come down in the -- after Q2, Q3. Once this cost of borrowing comes down, we'll pass on, then perhaps balance out actually.

Next question is from the line of Shweta Daptardar from Elara Capital.

Sir, thank you for the elaborate explanation. Sir, just my first question is slightly repetitive. So did you mention that 40% of our overall loan book should sort of be kind of impacted by this new circular?

No, I did not say like that actually. Only those conventional generation portfolio is about, say, INR 145,000 crores. Out of that, 60% projects are already commissioned, actually for that is around 40% of this is INR 145,000 crores, roughly about INR 60,000 crores, this would be impacted. And renewable energy, I told you that INR 35,000 crores, out of that, 80% is already commissioned actually. And going forward, whatever new sanctions we are giving in respect of innovation still get covered. So say, roughly to the tune about maximum INR 1 lakh crore portfolio in going forward, which will be impacted by this RBI guideline. Total asset about INR 5 lakh crore. Out of that 1 lakh crore, about 20% asset will get impacted.

Right. Sir, but you covered only the conventional generation renewable part. How about the remaining 15%, 18% of electromagnetic and our infra projects, will those also attract this new circular requirement of provisioning?

Thank you, Shweta, that is a great question. This is a competitive component like Metro project, MSRDC, [ X reliable ] they're all supported by the state government guide. It will not be impacted at all.

Okay. So you mean to say that, sorry, just sounding repetitive. So we are saying we just say new project, which is to impact will not attract this extra provisioning requirement?

That is what is our initial understanding based on the regulations issued in the current form. I think this -- we hope that this will undergo some change. And we will evaluate whatever issues you mentioned, all those issues will be evaluated and then we'll come out with accurate understanding of these issues.

So we had some discussion with RBI earlier actually with regard to the norms. We had detailed discussions with the top management of RBI. And the common wisdom which emerged after the interaction is that for exposure as far as the exposure is concerned, they are not going to take into account those loans which are supported by the state government guarantee. Mr. Baweja, you would like to supplement?

No, I just submitting that, in fact, the regulations, which have come in recently needs a lot of deliberations and many stakeholders will put forward their views on this. Again, the decisions will take place. And then finally, acceptable data will come for the implementation. So these are the comments which are being made by our company. But let us wait for the final guideline. We'll also put forward our view on that. And some of the things which may also come for relaxation also in the later part. Let's understand it, and let's wait for the right [ thing ].

Next question is from the line of Aditi from [ C D ] Research.

Sir, my first question to you is, given your expertise in assessing nonrenewable projects, how well do you think is your [ line consign experts for handling sanctions ] of renewable projects?

Yes. Let me share with you that government had allowed us to diversify into non-power infrastructure logistics in the month of October 2022. And we have taken a very cautious approach actually. We have ramped up our manpower strength. We have got in experts from different fields, put into infrastructure logistics. Now we are very well equipped to appraise these infrastructure logistic projects. We have a very strong entity appraisal, project appraisal teams. And we do have experts on board. But since we are getting sufficient business from conventional generation, renewable energy, we are going to be very choosy about selecting this infrastructure logistics project. Only those infrastructure logistics projects which are having good asset quality, where entity is strong, where revenue cash flows are assured, only those infrastructure logistics projects we'll be financing.

Okay. Sir, could you please tell me the difference between the expertise required while you assess the renewable and nonrenewable projects?

Yes. The different kind of expertise required, like conventional generation, the entire -- how these plants get elected, the balance of plant, this coal evacuation system, ash handling plant. Similarly for renewable energy, different kind of expertise required, the sourcing of the material, the installation, the maintenance is different renewable energy portfolio. But for infrastructure logistics, if you are going to sponsor airports, ports, metros, road highways, we need to have sector experts from this field who will be able to understand the nuances. So we have taken conscious efforts and we've brought in experts from all these fields who help us in appraising these projects.

Those who already work in this company.

Yes, those people who have already worked in this kind of project, we have taken them on board.

Okay, sir. Sir, and my second question to you is, what is your estimate of provisions that we seek reversal in the future?

Okay. Our gross NPA is about INR 13,800 crores. And out of that, about 7 projects are heading towards liquidation that is amounting to INR 2,222 crores. For this, we already made 100% provisioning. And some projects have already been dissolved, like Lanco Amarkantak, DANS Energy, [ Padreshiwa ], Nagai, that amount about INR 5,000 crores. For which we had made provisions of [ each written ], but we already got some write-backs on these projects, which we already factored in. The remaining amount is about INR 7,000 crores. And we see that good resolution coming from this product like KSK Mahanadi is 1 of the best operating assets, which is under NCLT it's [ the R ] account is INR 10,000 crores. Admitted claim is about INR 29,000 crores. And we hope that -- and we have made posting about 58% provisioning we have done for -- sorry 52.4% provisioning we have done. And we expect that it may lead to 100% recovery in KSK Mahanadi because a lot of interest has come, more than 30 [ expressions of interest ] have been received. Similarly, similar plant in Nashik. For that, we had made 50% provisioning. For that also, because we are getting more than 11 companies already submitted their expression of interest. There also we see that our [ haircut ] would be limited only about 20 to 30%, not more than that. There also we will get write-back. Then [ Hirun Mapol project ] is there. There also we see good resolution happening. And [ Thiron ] Energy, we've already done restructuring. Entirely in sum total, we can say that we are expecting a write-back to the tune of INR 1,500 crores to INR 2,000 crores in the financial year FY '25. And we hope that all this asset would get resolved in the current financial area itself and will become net zero [ NPA ] company by the end of FY '25.

The next question is from the line of [ Rohan Rudal ] from Envision Capital. The next question is from the line of Niharika Jain.

So again, I want to understand a bit on this RBI provision because you always emphasize that we want our renewable energy at competitive rates, and we almost have 130,000 in the sanction pipeline. So because of these impending norms, do we feel that we will be going slow in the sanctions or we will be revising the sanctions?

No, we'll not be revising the sanctions actually. And as you are aware that Government of India is committed to install 500 gigawatt capacity by the year 2030. And so far, the commissioning which was happening was about 12 to 14 gigawatts every per annum. But from this year onwards, they stepped up their ambitions and per annum, they are targeting installation of 50 gigawatt capacities. So these capacities are in the pipeline, and we are quite confident that we will be able to support this renewable energy portfolio -- projects which are coming in a big range. And we have a very diversified portfolio in the RE portfolio also, like let me give a breakout. Last year, we sanctioned project worth INR 136,515 crore. Out of this, large hydro projects constitute about INR 32,450 crores, pumped storage hydro project was about INR 28,304 crores; followed by solar, about INR 21,000 crores. Then model manufacturing was INR 21,565 crores; followed by green hydrogen project, about INR 8,000 crores we have sanctioned; electric mobility, about INR 8,000 crores; wind-turbine manufacturing about INR 3,200 crores, wind projects about INR 3,500 crores; and hybrid solar wind about INR 10,098 crore. So here in this segment, large hydro and pumped storage projects, they do take a longer time for evolution. So there this additional provisioning will have to do, whatever final guidelines come actually. And normally, the [ doubly ] solar, wind, hybrid, they do get commissioned in time and a lot of push is there from the Ministry of Renewable Energy and the entire government of India. So we hope that all the developers will try to adhere [ tenement ] they do commission before time also. There's a lot of projects that are coming and getting commissioned before time.

So basically, I wanted to understand because, again, hydro and pumps, as you said, will take more time and [ lately ] most of the time the DCCO is extended for these projects. And we have already sanctioned these projects at a particular rate. So do we feel that we'll need to revise [ the team ] to maintain a decent spread for ourselves as a company?

Yes. The sanction is done, where we have made provision that interest gets reset every year actually. And plus, we do expect that going forward, our cost of borrowing will also come down. Perhaps, it will balance out the need for increasing due to additional provision, [ but on from there ] the cost of borrowing comes down.

Okay. And my next question is pertained to that. Only that a recent period is, say, 2 to 3 years. And this comes -- suppose it gets implemented as it is. Again, that's an assumption. So our reset again would take another 2 to 3 years. So we feel that the margins would get compressed because we won't be able to pass it on for another, say, 2 years whenever the reset comes.

So the projects that we are lending now, like we have done 135,000 for renewable. The interest rates are linked with our targets. And these targets are subject to change. We keep reviewing these targets from time to time. And whenever some [ discussions ] happened, that was linked to our target. So then linked to our target, that is one. And the reset is, in all cases, is [ running ]. So all new sanctions. What we did in the past was [ up for ] 3 years also, but these recent sanctions are with 1 year reset only.

I'm talking about the older sanctions only, which is already there in our book in our INR 5 crore there would be some like AUM, which we have a reset of 2 to 3 years and 20% of AUM will be subjected to [ see ] these norms.

I think you have misheard; actually, I had clarified that out of 5 lakh crore this asset under management. most of them are already commissioned. Only 1 lakh crore of projects are under construction, which will get impacted. And as far as renewable energy projects are concerned, out of INR 35,000 crore loan book of renewable energy 80% is already commissioned actually. Only 25% -- 20% is under construction. About 20% of around INR 35,000 crores projects under construction -- as far as renewable energy under construction. But yes, those where we have sanctioned last up, they'll come into construction phase this year, and we will take about 2 to 3 years [Technical Difficulty]

And my last question would be on these [ idec ] norms, where -- so are we planning to kind of increase our ECL percentage...

Sorry to interrupt, ma'am, could you please return to the question (sic) [ queue ] for follow-up questions, as there several participants waiting for their turn.

Regarding the ECL provision which you are seeing, that is only in respect of cash assets. That is the Stage 3 assets, not in respect of the standard asset provisioning. So ECL provisioning in any case, we are calling for the LGD and PDD, which is there and also as per the rating of the borrowers. So that, in any case, will be like that only. So there won't be any impact on that.

Next question is from the line of Manuj Jain from Wellington Management.

My question might be repeated. Still, I would like to check with you just clarification. So for any new lending to, say, renewable power, can you give me some sense how much the cost will increase for the borrower if the draft guideline is implemented in the current form?

Let me [ repeat any to is not likely to exist ] any amount actually because like we are planning to raise green bonds, which will -- to cater to the green projects only. So green finance when we are -- green bonds we are raising, we're getting lower interest. We [ were ] able to [ pass on.] That's what I am stressing of time and again that for renewable energy projects, our borrowing cost is lower actually, so -- and any increase with the additional provision will get offset by the lower cost of borrowing.

Clearly, you have a benefit there, even raised green bonds and you might not be able to pass through. But maybe if this green bond is not available to you and you basically raise funds from conventional sources and this draft is implemented. Can you give some sense like if this 5% provisioning under-construction stage, how much the cost will increase for a borrower? Is it 50 bps, 100 bps? Like just some sense around that?

There won't much impact because there is ample funds which are available for the green financing. It's not only the green bonds, there are a number of lenders who are willing to lend at slightly lower rates as compared to the normal raising which we are doing, both in domestic market as well as the international market. So there are enough funds which are available, and the differential is about 10 to 15 basis points as compared to the normal borrowing which we are doing for the general purposes, for conventional generation also. So there are differences already there. And since our cost of borrowing has already come down from 7.28% to 7.13%. And this year, we are anticipating the rate cuts which are likely to happen, it may come down to about 7%. So as such, we won't reduce the rates, so the rates will remain almost stable at which we have lent at present.

Okay. Maybe I'll just ask 1 more way. Like given you mentioned like India needs to -- is thinking to implement a [ fund of ] 50 gigawatt every year of renewable power. Post this draft, do you think there are going to be some slowdown given the cost of funding might go up for some of the developers? Or will this change will not impact that pipeline at all?

I don't see there is any slowdown, but the pace will -- is going to increase actually. You see -- you'll have to wait for the budget, which will be coming in the month of June, July. There will be a major push on this infrastructure sector. We are anticipating that major push through their infrastructure, including power sector. The government [ baidu ] is going to be very clear with regard to infrastructure projects. So I don't see any -- and government is committed to make all enabling provisioning, to facilitate this development and [ further this they are ] aspiring to become a developed country by the year 2047. Government has to make all the enabling provisions. I don't see any slowing down of these infrastructure projects.

All right. And just last confirmation. So this thing will have 0 impact at all on the projects which are already running, right? Which you have, whether you have state guaranteed or not is for private developer projects which are already running -- making revenues, cash flows, 0 impact at all because you don't have to change any provisioning at your end, right? Or anybody else?

Actually, we are having our own target, which are quite different from that of the banks. So banks are having the benefit of the CASA. So there, we were giving very competitive rates. So there, they may have to increase the rates, but our rates in any case were almost similar to that. So we have reduced our rate. Now it will be almost at par at whatever [ CASA decides ]. So there won't be an increase in our lending rates as such, but there won't be much competition from the banks because they may have to increase the rates. As such, our rates will remain stable. There won't be change in that.

Next question is from the line of Nishant Shah from MLP.

Sir, a couple of questions. You mentioned earlier in the call that the government in this would be out of the scope of the circular. It was mentioned [ somewhere ] because we must have missed it, or is this like some local [ government that we've taken ] like just trying to get some conviction around the last government project being out of the scope of the circular?

No, it is not mentioned anywhere. But we had detailed deliberations with RBI last year actually with regard to -- there were certain concern about the exposure now. Back then, we had a detailed discussion with RBI management, and the common understanding, which was -- [ we reached in mind ] was that from the exposure and they are taking out this state government guaranteed loans are being kept out of the purview of these exposure norms. This due to RBI guideline, [ top RBI ] guidelines, our Tier 1 capital is going to [ richer ] but that will impact to our exposure. As for exposure is concerned, we are very clear that the state government guaranteed loan are not [ concerned ]. Yes, out of the purview.

That is clear. Okay. And sir, the second is around the differential accounting between NBFCs and banks in this regard. Like, so if I can [ just seeing RBI are there kind of there be some actions which too much differentiation ] between large size and [ citizen ] banks. So if banks are going to be sort of disproportionately affected [ that is the case it would communicate ] of less competition for you. I'm just trying to fathom like if there is something in the bank of RBI you are trying to bring up like make the content [ the del ] at a giving banks on assumption [ of LIBOR ] or because it seems a little [ complicated ] looking at how the RBI has been sanctioning up to it. [ Kind of been like around MCR the tell between bank ]

Let me tell you that the spirit behind RBI draft guideline is closer scrutiny of the under-construction projects. Historically, the under-construction projects are normally delayed in the country. So the broad focus on this under-construction project. With regard to competition from the banks, Sanjay has already clarified. Sanjay would like to supplement.

And actually, you are saying about the accounting treatment in case of banks and NBFCs. This was your question, please?

So as said just on incremental projects, you can just take the difference between the [ in just the ] provisioning requirement and the prescribed by the circular as an adjustment to the impairment for banks, where banks will not have that leeway. [ And the wider sense ] helps NBFCs like you NBFCs kind of do better. I'm just trying to think about that a bit more. Is that something -- is that interpretation first of all correct from my side? And second, is there something that like the RBI can do to kind of allow banks the forbearance or like prevent you from moving the [ kind ] of accounting treatment and passing provisions to P&L or something like that. I understand the comp in recent times the RBI kind of [ likened those differences ]. Actually [ that's the gist of the ] question.

As far as the accounting treatment is concerned, the Ind AS was followed in case of NBFCs from 2018, '19. So banks despite a number of opportunities given to them, RBI didn't implement in case of the banks. So still, it is not being implemented there. Whatever the provisioning they are doing in [ distressed ] assets as well as the other provisioning also, that is routed through the profit and loss accounts. While in case of NBFCs, the provisioning as standard assets and other assets is concerned, that is done on the basis of certain systematic methodology which is there. Regarding the LGD and PD which is there on that basis, as [ permitted ]. So the provisioning as far as the standard asset is concerned, it can be even lower than the 0.4% which is [ consistently ] required by RBI prior to the circular. So Ind AS, the total provisioning as per the methodology which is their for [ ECL ] computation. So in case of the banks that is not there, they have to pass it through the profit and loss account itself. While in case of the NBFC, it is not like that. So at present also, we have to compare the provisioning which we are doing in respect of the ECL, with that of the provisioning, which is required as per the [ ec ] norms. And in case any difference in there, say in case it is lower than the [ ec ] norm, then an impairment reserve is required to be stated. So same thing will be there going forward also. While in case of banks, it will be routed through the profit and loss account itself. Actually, why it was not implemented in case of banks, there is a purpose also for that. There is a reason also behind that. While there was too much provisioning which was required, the capital is to be infused by the Government of India in case of the banks. So that was the main reason why the Ind AS was not implemented in case of the banks, while it was implemented in case of the NBFCs.

Next question is from the line of Umang Shah from Kotak Mutual Fund.

I have a couple of them. While I appreciate that on your existing back book, there might not be a material impact, right, as bulk of the projects are already operational. But don't you really think that the new guidelines does impair our ability to grow in a meaningful way? Where I'm coming from is that in your initial comment, you also allude to the fact that there is a possibility where banks and players like yourself might pass on some of the incremental costs, which will obviously alter the viability of some of the projects that we intend to finance. So although the sanctions pipeline at this point of time is looking fairly good, how much of that eventually gets converted into disbursements? Do you really think is there any risk to that number? And also as a proportion, currently the share of under-construction projects is relatively lower. But as we keep increasing or keep growing the book, this proportion will eventually increase, right? So to that extent, there will be material impact on our capital ratios as well. Just wanted to hear your thoughts on these points.

There won't be an impact on the capital ratios. It will only be Tier 1 capital that will be impacted. All of the ratios will remain the same. There is no change in that. The results in the net worth will also be same. It's only the impairment reserve, which is not a [ key ] reserve, which will not be available for distribution purposes or any other purposes. For general purposes but say ]. But otherwise, it's only the Tier 1 capital which will be impacted, which will have an impact on the exposure that we can take in respect of any single borrower or group of borrowers. Otherwise, it won't be impacted as far as profitability is concerned, net worth is concerned, book value is concerned, there won't be an impact on any of the figures. And as far as growth is concerned, so we'll have to grow at a faster pace than at what we do at present and [ as far as further ].

I don't think any slowdown of this project actually. [ I already made clear ] there will be a major push from government also for infrastructure sector. So they will be making all enabling things. Even if cost of funds goes up, it will -- it's not going to slow down this progress of the infrastructure projects.

Got it. Because, sir, I mean when we are talking to some of the other players within the ecosystem, they are fairly circumspect about the growth prospect either on the infrastructure side or on the power sector side. So I mean, it's quite interesting that you have a view that the growth will not get impacted in a meaningful way. Sure. Sir, the second point, which I wanted, which is more of a clarification at this point of time. Two points which you mentioned, one, that these norms might be applicable only to projects where DCCO extension has happened? Or will it be applicable to all under-construction projects regardless of whether they are within the guidelines or not? Is there any clarity on that point as yet?

It will be [ applicable ] all under-construction projects. All CapEx projects. So we have made it -- it will be affected affecting all the under construction projects despite whether it is DCCO extension or not.

But in our view, it should be applicable to the DCCO extension projects only. For that, we'll make a special RBI. Let's make an analysis and come back to us.