Power Finance Corporation Ltd
NSE:PFC
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Power Finance Corporation Ltd
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Ladies and gentlemen, good day, and welcome to Power Finance Corporation Q1 FY '19 Post Earnings Conference Call, hosted by Prabhudas Lilladher Private Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Pritesh Bumb from Prabhudas Lilladher Private Limited. Thank you. And over to you, sir.
Hello, everyone. So we would like to welcome the top management of Power Finance Corporation to discuss the Q1 FY '19 results. Now I would like to hand over to the management to give their brief comments and then followed by Q&A. Over to you, sir.
Thank you. Thank you very much for giving us this opportunity. Good morning, everyone. I welcome you all to this conference call. I called this conference call to share with you PFC's first quarter FY 2018/'19 performance and also the implication of transitioning to Ind AS reporting system.Firstly, I will share a few highlights on PFC's performance. On business growth front, we have shown robust loan growth of 13% this quarter with loan assets at INR 2,84,848 crores as against INR 2,52,746 crores in Q1 of previous year. We continue to make efforts in refinancing commission projects and financing greenfield renewable projects. These efforts had already led to a strong disbursement in FY '17/'18.On profitability front, our profit in Q1 FY '18/'19 has shown a growth of 22% with profit at INR 1,373 crores as against INR 1,122 crores profit in Q1 FY '17/'18 based on Ind AS reporting. Our Q1 spread is 2.49% as against a spread of 2.65% in previous quarter that is Q4 of FY '17/'18. The fall in spread is due to increase in refinancing and renewable business with lower spreads and competitive pressures. I would like to inform you that there is no addition to stressed assets other than what we have indicated in last financial year.On the NPA front, we saw one of the earlier stressed projects with loan of INR 561 crores slip into NPA category, which as per Ind AS is classified as Stage III. At the same time, one stage sector project with loan of INR 1,100 crores got upgraded to restructured standard asset as per earlier RBI norms after serving the specified period.With respect to provisioning. As we are now following the Ind AS reporting, we have accordingly restated our financials, whereby we have shifted from rule-based provisioning as per RBI norms to expected credit loss-based provisioning under Ind AS. Accordingly, our net NPAs have dropped to 4.53% in this quarter from the net NPA of 7.39% declared as per IGAAP in FY '18. I'm glad to inform you that with the additional provisioning also, our capital adequacy ratio is comfortable at 17.71% against the RBI requirement of 15%.Let me explain the impact of Ind AS on PFC's performance. We have implemented Ind AS with effect from 1st April 2018. On account of Ind AS, our total provisioning as on 30th June 2018 stands at INR 17,238 crores. Out of this, expected credit loss provisioning is INR 15,445 crores. Also as a matter of prudence, we have made an additional provision of INR 1,793 crores in line with RBI prudential norms, over and above expected credit loss provisions. The main impact of shifting to Ind AS reporting has been on PFC's network, which got reduced by about INR 3,000 crores at the end of March 2018.It's important to note that at present there are no specific instructions or guidelines issued by RBI with respect to provisioning post implementation of Ind AS. However, in case RBI clarifies provisioning, it is going to be based on expected credit loss alone, then the entire additional provisions made of RBI norms of INR 1,793 crores will get reversed. Even in the essence of RBI clarification, out of these additional provisions of INR 1,793 crores, the reversals in coming years in line with RBI norms are: INR 719 crores will get reversed during current financial year FY '18/'19, INR 213 crores will get reversed in next financial year '19/'20. And therefore, in view of these likely reversals, PFC will be able to make up for the loss in network for financial year '18 expeditiously.Let me now explain our loan asset book. We have a total loan asset portfolio of about INR 2,85,000 crores, out of which government sector loans are INR 2,33,000 crores, that is 82%. Private sector loans are INR 52,000 crores, that is 18%. Regarding government loan book of INR 2,33,000 crores, government sector borrowers are servicing dues regularly. Further, we are not envisaging any stress in respect of government sector borrowers. With the implementation of Ind AS, there are no government sector projects under Stage III now as of 30th June 2018.In case of private sector exposure of about INR 52,000 crores, about INR 21,000 crores private sector loans, that is 7% of our loan book, are regular in servicing their dues, and we see no financial stress. Therefore, 89% of our total asset book is not having any kind of stress. Out of the balance private loan assets of about INR 31,000 crores, revival with minimal haircut is envisaged for INR 5,300 crores. However, still we have already made a provision of 15% for these projects against the balance private loan assets of INR 24,500 crores, 77% provisions, including reserves are available.Now I will share the update on 28 stressed projects with you. In 5 projects, with our exposure of INR 5,300 crores, we expect minimal haircuts. These accounts are: number one, GVK Ratle project in J&K, where we have already entered into settlement with no sacrifice as the account is likely to upgrade in current financial year leading to reversal of provisions. Dans Energy and Shiga projects in Sikkim. These are hydro projects. PPAs are signed and power supply has commenced, and the company has started making payback to lenders.India Power Haldia, it's a project in Haldia in West Bengal. It got restructured without any sacrifice in quarter 1 and is likely to turn standard after the specified period. For South East U.P. project, it's a transmission project in U.P. We are in discussions for single management. The total provision in these 5 projects is 15%, even though we expect minimal haircut.Now next 5 projects with our exposure of INR 8,254 crores, these are in advance stage of resolution. These projects are GMR Chhattisgarh, Jhabua Power, KSK Mahanadi. These 3 projects, we are having discussions with actual bidders, and we are likely to close these deals very soon. Indiabulls Amravati project and Essar Mahan. In these 2 projects, onetime settlement offers have been submitted by existing management, and they are under finalization. We are likely to close these 2 projects also very soon. We, therefore, see a likely resolution in these 5 projects where the total provision already made is approximately 48%. Two projects with our exposure of INR 8,156 crores, lenders had made significant progress towards resolution. These projects are: Indiabulls Nashik, where takeover by state government of Maharashtra is the pursuit. Second project is R.K.M Powergen Stage I and II where restructuring process is underway, the positive for the project is that it was declared L1 for 550 megawatts in the recently concluded bids for pilot PPA scheme for stressed assets. The total provision already made for these 2 projects is 41%. As you are aware, the deadline for filing an NCLT for large borrowers was to get over on 11th September 2018. However, we understand that the Honorable Supreme Court has stayed the NCLT filing requirement under RBI circular. We are, therefore, continuing with the resolution process to close them at the earliest.Nine projects with our exposure of INR 8,100 crores are being resolved through NCLT. The total provision already made in these 9 projects is 73%. 4 projects with our exposure of INR 298 crores are being resolved through DRT or SARFAESI mechanism, and these projects already have 100% provisioning.There is 3 projects with our exposure of INR 689 crores are Essar Transmission where the project is very close to commissioning, and we are in discussion with the existing promoter for an OTS. For [ RS India ], an OTS proposal has been submitted by the promoter, which is under consideration in PFC. For Astonfield project, lenders are considering changing management. The total provision already made for these 3 projects is 37%. Therefore, the 23 projects, which are under various stages of resolution amounting to INR 25,500 crores have already provisioned coverage of 54%. Based on the bids received for stressed assets so far, we do not see any additional provisioning going forward. Further, we also have a cushion of INR 1,793 crores of additional provisioning done as a matter of prudence in line with RBI norms, which is likely to reverse.On the power sector front, I would like to state that steps taken by Government of India like introduction of UDAY, SHAKTI, pilot PPA scheme have already started yielding results. Recently, Ministry of Power has also issued directions to CRC for timely disposal of tariff petitions pertaining to change in law. The residentially constituted Empowered Committee under the Chairmanship of Cabinet Secretary for stressed assets has already started discussions with [indiscernible] to expedite the resolution of sectoral issues impacting power projects.Further, on the power demand front, we have seen demand growth for power at above 6% and with 100% rural electrification and Saubhagya Schemes likely to see closer, we see further pickup in demand, and this is likely to add another demand of around 28,000 megawatts. Additionally, the poor plants of 15,000 to 20,000 megawatts are also likely to be closed due to environmental concerns. All this is likely to translate into power demand pickup in the country. With the Government of India and all the stakeholders taking the necessary steps and with likely uptick in power demand, we are optimistic that the stressed projects are likely to fetch better valuations going forward.With regard to our foreign currency borrowings. Our total foreign currency exposure is USD 3.1 billion, that is 9% of total borrowings. Out of USD 3.1 billion, USD 1.8 billion is -- that is 58% is already hedged. Out of the balance open portion, USD 430 million that is 14% will mature after almost 10 years. And as per RBI guidelines, upfront hedging is not mandatory. USD 850 million, that is about a 28%, has average maturity of 3 years, and there is sufficient time to maturity for this open portion. We, therefore, do not see significant impact due to current volatility in exchange rates.Now let me share with you the business going forward. We have sanctioned our first loan for sewage water treatment plant in Maharashtra, which will be used to feed water to 2 thermal power projects. Also, we have enhanced the loan amount to the irrigation projects in Telangana about which we have informed you earlier.We have also sanctioned 2 Waste to Energy projects till data, and we will continue looking for financing opportunities in this space. We will also continue to focus on state sector business, especially in the states with whom we have signed MOUs, like U.P. and Maharashtra. Our focus will continue to be on the financing business to add more commission projects to our asset space. Renewable business will continue to be our focus area. We will continue to make efforts to mobilize higher amounts under 54EC bonds going forward.Just to conclude. We have made a smooth transition to Ind AS reporting system with our net profit growth reported at 22%, with total provisions reaching INR 17,238 crores. This quarter, we are [indiscernible] is provided for our stressed assets, and we do not see additional provisioning going forward. We, therefore, believe that the worst is behind us now in terms of provisioning for stressed assets. We are also likely to see reversals from additional provisioning on RBI norms and reversals on some stressed assets. With our diversification of lending business, we intend to maintain our loan growth.Now we are open to questions. Thank you very much.
[Operator Instructions] The first question is from the line of Mahrukh Adajania from IDFC Securities.
Sir, I just had a couple of questions. Firstly, could you list all the 7 projects under SAMADHAN which have buyers?
SAMADHAN, we have KSK Energy...
And Avantha Power.
Avantha Power Jhabua; Ind-Barath Energy (Utkal), it has gone to NCLT; R.K.M. Powergen, which we are likely to restructure because it has got 550 megawatts PPA in our pilot scheme being undertaken with PTC for stressed assets. KSK, we have already received the bids, and it is under evaluation. We are likely to close it very soon. So in SAMADHAN, we have 4 projects in which we are there. Avantha Power Jhabua, Ind-Barath Energy (Utkal), KSK Energy and R.K.M. Powergen. Jhabua -- in Jhabua also, we have also got very good onetime settlement offer, and it is also likely to be closed very soon.
Okay. And sir, we got paper reports which says that Essar Mahan will likely go to NCLT. So those are not correct, is it?
No, no, no. Essar Mahan also we have got a very good offer of OTS. But it is, again, under evaluation. And since Honorable Supreme Court had stayed that 12th February circular, now we are likely to close it. It's a very good offer.
And sir, what is taking time for the resolution of SAMADHAN account if buyers are being identified? Is it that the lenders are delaying their board approvals? Or what will be holding these out because the buyers are there, it's a stressed sector resolution. Could that happen faster?
You would appreciate that in consortium lending. There are many consortium partners. Just to give you an idea, in KSK Energy, there are 27 lenders. And you would appreciate to get consent from 27 lenders. 22 lenders have already given their consent, 5 have yet to give us. So with this time which we have got after Honorable Supreme Court's stay, we are likely to bring those lenders also on board. This will be a reconciliation process. And for OTS offers also, lenders are not like KSK Energy, but still in some cases, 10, 12, 15. So because you require 100% consent of all the lenders, that's important. You would appreciate that.
The next question is from the line of Kunal Shah from Edelweiss Securities.
Yes, sir, firstly, in terms of the entire hit on the network because of Ind AS, sir, this is almost like INR 3,000-odd crores. So when you look at last time, so the overall provisioning last time, which we had outside of the reserve for bad and doubtful debt, that was INR 9,000 crores. And now under Stage III, what we are required is almost like INR 14,000-odd crores. So would the hit have been higher, and we have adjusted the reserves in the network? How is this?
See, earlier, we were not considering that DTA, deferred tax on these assets -- on these provisionings. So considering the DTA of around INR 4,800 crores, leads to this figure. INR 4,800 crores is compensated by DTA, and INR 3,000 crores is the dip in the net worth.
Sir, total hit on the net worth on account of higher provisioning would have been INR 8,000 crores or INR 7,800 crores.
It's around INR 8,000 crores. I said INR 3,000 crores we have already said the net worth has reduced INR 4,800 crores due to DTA and around INR 200 crores is on the account of adjustment of Ind AS.
Okay, perfect, okay, cool. And secondly, when we look at it in terms of the accounts, which are regular in servicing of INR 20,000-odd crores, so out of this, which would be the few major accounts if you have to look at it, maybe if you can just say like top...
One is this Hindustan Power. A 2x600-megawatt project in Madhya Pradesh, Anuppur. Sasan, the first ultra-mega power project 4,000 megawatts in Madhya Pradesh, which is supplying the cheapest power in the country. Then...
In Hindustan Power, how much would be the exposure?
It's still INR 1,370 crores.
Okay. And Sasan?
Sasan, INR 1,638 crores.
Okay. And balance maybe top...
Balance maybe -- then another one is 330 megawatts Alaknanda hydro project of GVK, in which we have exposure of INR 501 crores. Others are renewable projects.
Okay, okay. So there is no major exposure, which would be higher than INR 2,000 crores, INR 3,000-odd crores in this?
No, no, no.
Okay. And this time when we look at it as compared to that of last time GNPLs plus restructured, this time there is some addition. So this is largely because of GVK and Shiga?
Shiga, but it is reversing now. They have got [ EFS ] Haryana, and they have started paying towards, hydro projects in Sikkim.
Okay. So this INR 1,880 crores which is there in Stage III that is GVK, Shiga and Dans Energy?
Yes. These are 3 projects: GVK, Shiga and Dans, INR 1,880 crores.
Which is there in Stage III?
Yes.
Okay, okay. And lastly in terms of the state utilities, so last time there was GNPL also, which was there in the state utility as well as something which was there in the restructured so that was also almost INR 25,000-odd crores. Now it is definitely not there in Stage III, okay, largely because.
Yes. Because there is no financial stress. it was due to technical reason.
In the [ ECL] , these affects have gone to Stage I because there's no financial stress.
But if we look at in terms of the performance, last time it was there in GNPL of INR 5,000, crores. So has that been the improvement in the performance in these zones? Have we got the repayment or something? Or how is it?
Yes. One project got reversed, INR 1,100 crores, Jurala Hydro in Andhra Pradesh.
And in Rayalaseema also...
And Rayalaseema another project, thermal project.
INR 3,000 crores.
INR 3,000 crores also got...
How much? Okay. So almost INR 4,100 crores out of this INR 5,000 crores in which ways would have got even if it would have been a GNPL, then also this would have got reversed?
Yes, yes.
The next question is from the line of Gaurav Bhuwania from FirstRand Bank.
Sir, my question would be what would be the time lines for the recoveries in the state government projects under Stage II?
That -- in between 30 to 90 days, it has been categorized as Stage II.
What would be the recoveries to Stage I?
Less than 30.
Less than 30 days in the Stage I.
Sir, I just wanted to ask when would the assets be transferred to Stage I.
Which one?
So all the Stage II assets in the state sector loans, when would be transferred to Stage I for standard?
[indiscernible]
See, whenever we get the payments, it will be shifted to Stage I.
Okay. Sir, maybe can you have a guideline on at the end of the financial year, what would be your Stage II assets?
See, very difficult to say. We have been proceeding with all the states and the private sectors on making payments. If, suppose, due remains for less than 30 days, it will shift to Stage I, otherwise it will be in Stage II.
Okay. And sir, second question would be, of the total portfolio, how much percentage would be fully commissioned of the regular projects?
Can we get back to you on this number?
Sure, sure, no problem.
I think it will be more than -- but we will again confirm.
The next question is from the line of Anand Laddha from HDFC Mutual Funds.
First of all, thanks for the very detailed presentation, which gives a lot of clarity on the [indiscernible] client impact exposure. Your disclosures are one of the best in the industry, sir.
Very good. Thank you.
Second, sir, if you can give us some color, what is our total exposure to renewable sector? And within that what is exposure to solar and wind?
Roughly our exposure to renewables is around 6% of the total loan book.
Okay, which is almost like INR 12,000 crores to INR 13,000 crores.
Yes.
How much will be solar? And how much will be wind?
Just a minute. Outstanding is INR 5,762 crores in solar.
[indiscernible]
INR 6,000 crores is -- around INR 6,000 crores is solar and around INR 5,762 crores is in wind. Around -- but solar is more.
Okay. So hydro is not part of the renewal, sir?
As on this, no. Only up to 25 megawatts is in renewable, but government is considering to declare, but that hydro policy is still awaiting approval of the cabinet.
INR 272 crores.
INR 272 crores is in hydro.
Okay. Sir, we had 2 small exposure on [ NPA ], one was a Maharashtra-based [ gas ] plant in NTPC and [indiscernible] are also shareholders. Is it part of the...
It has become standard now. After demerger policy approved by the high court, it has become standard now.
Okay. And one more small thing we had in [indiscernible] for exposure.
This is standard.
They've been making regular payments.
They are making regular payments to us.
Okay. Sir, if you can you give some color on our incremental lending rate. Have we increased our lending rate? When it will get implemented fully if we had increased our lending rate?
I think last quarter we increased it by 25 basis points. Again, we are reviewing it. I can't say that we will consult with our [ computor ] REC and we will definitely take a view very soon.
And sir, what could be our incremental lending yield now, sir?
Maybe around 10.5% to 11%.
Okay. And sir, in terms of borrowing, sir, the current [ deal ], which source of borrowing plan do you use? Is it domestic borrowing plan being used more or international? Hello?
Can you hear me, sir?
Yes, yes, very good.
Sir, on the borrowing side.
The other question.
Yes, sir, last question, sir.
Hello?
Hello? Can you hear me, sir?
Yes, yes, I'm able to hear you.
On the borrowing side, sir, can you give some color?
Hello? Hello?
[Foreign Language]
[Technical Difficulty]This is the operator here. Can only stay online while we check the management side? Ladies and gentlemen, thank you for patiently waiting. The line for the management is connecting now. Sir, you may go ahead.
Sir, on the borrowing side, if you can give some color how we plan to borrow money for the rest of the year? Are we looking at domestic bond borrowing? Are we looking at international bond borrowing? And what is the incremental cost of the borrowing?
See, it will be mix of domestic as well as the foreign borrowings. And the domestic may be mix of short term and that -- through [indiscernible] as well as in the term loan from the banks.
It will come at what cost, sir?
It depends on the tenor. Today, if you see that even the 10-year bond is costing around 8.80%.
We are in discussion with State Bank of India and LIC for long-term loans.
Okay. And international bonds, sir, will come at what cost, sir?
Nobody can predict it today. But at least at that point of time we will try to get the cheapest.
Okay. Sir, the current spread of 2.5%, do you see some downside risk to this spread or do you think it will maintain at this level?
I think we will be able to maintain because of competitive pressure it has come down, but volume of business is increasing. Moreover, our share in refinancing is increasing. So they are already commissioned, so that risk is less. So definitely we are able to maintain.
The next question is from the line of Andrew Lundstorm from WindAcre.
To follow up on the prior question, if the cost of funding might be 8.8% and the incremental lending rate might be 10.5%, then how can we maintain a 2.5% spread?
Yes, because for state power utilities and for some private sector projects, our interest rate is in the range of around 11%. So it's a mix. In some good projects, if it's a commission project, we offer a very, very competitive rate. But for state power utilities, we offer interest rates in accordance with their categorization. We categorize them in accordance with the risk [ for example ], A plus, A, B. So definitely if it is a lower grade, we offer a higher interest rate. So it is an average of all of our interest of our 2 different borrowers, so we will be able. Because our 82% share is in state power utilities, government utilities, so we are fully confident that we will be able to maintain this.
Okay. What is the strategy of focusing on refinancing coming from -- I mean, is that also included in the state sector?
Yes, it's again a mix. We have refinanced a project of NTPC, also. In -- it's a joint venture of NTPC and U.P. government. So we replaced 17 banks there, so it was a thermal project of 2x660 megawatt. And we have also taken over wind projects. We have refinanced some solar projects, also. And we have refinanced the bank portion in a thermal project in Karnataka, in which we were lender already. We were there, but we have replaced banks. So it's a thermal project, going to 800-megawatt project in southern states, Karnataka [indiscernible]
And what percent of the current loan book today is loans to refinancing opportunities? And where might that develop? Or what number might that go to in over the long term?
In terms of interest rates we will offer?
In terms of...
Maybe around INR 10,000 crores in private sector and government sector may be around, again, same number. So we will definitely try to explore that.
Do you envision that growing much larger?
We will consider the stressed assets, also. So suppose a new developer comes into some stressed asset and he approaches us, some of them have already approached us. So that is also another opportunity to fund such projects.
Okay, great. Can you discuss in the asset quality discussion, how you assessed the 54% haircut on those 23 stressed projects. What was the manner you determined or studied that figure?
This is overall average because almost 54% we have provided for, and we don't expect any further provisioning once these projects are resolved because many of them we have received offers from new developers, which are under evaluation. In some projects, we have got one-time settlement offers, and this -- it is based on the sustainable debt, which is calculated and evaluated by a rating agency, CRISIL, ICRA, so they have already been on panel by State Bank of India, and we have awarded this work to those rating agencies and rating agencies have already informed us the sustainable debt level in these [ projects ]. Accordingly, we have decided that how much we should provide for these projects. So we are quite hopeful that we need not to provide any further in these projects -- stressed assets.
And do you happen to know how they determine sustainable debt? Is that something like a multiple of 4x?
Yes, very much, because they take all inputs from us. And if the project has good positives, then sustainable debt is more. If it has more negatives, sustainable debt is less. So our appraising officers are very much aware about this because we have got a variety of projects in our loan book. So these rating agency officers, they are constantly in touch with our officers.
Okay. And given that you are not receiving full interest or maybe any interest on Stage III loans, you must think that PFC is underearning on its NIM?
Yes, 3 projects, we are not earning any interest, though [ ECL ] allows us, but we are not earning.
And you have an idea of how that NIM might adjust, once it's at a normalized level?
Yes. When this stress assets will back, no, that we realize the amount, definitely we'll [indiscernible] and then [indiscernible]
Can you quantify that at all?
It is very difficult to quantify at this juncture because once we close the project only then we will come to know. But this is our guess that haircuts what we were expecting in accordance with that we have provided for depending on the sustainable debt level in each project.
[Operator Instructions] The next question is from the line of Vishal Goyal from UBS Securities.
Thank you for your disclosures. But the question I think I have is, on the SAMADHAN account, what is time line we should expect to close this resolutions?
Actually, we have 4 projects in SAMADHAN, our one-stop power Jhabua, we have already received OTS and it is under evaluation. I think very soon, within a month we should able to close. Similarly, Ind Barath Utkal it has gone to NCLT. So it will take time. It has been admitted also. Then KSK Mahanadhi, already we have identified the actual bidder and you would appreciate that there are 27 lenders in KSK, 22 are already on board. We are in discussion with remaining 5. And we are trying to bring them on board. Similarly, in RKM Powergen, we are trying to restructure with the existing developer because it has got a very good positive development, 550 megawatts PPA under that pilot scheme of PPC and PFC Consulting Limited, they have got LOA for that. So for 3 medium-term PPA for 3 years, they will be able to -- they have got it rather. They were L1. So we will be able to resolve this. And now we will get the rating done, sustainable debt and all that and we will resolve this.
RKM can also happen in 1 month or it could take more?
Yes, 1 month possible. Yes, because already LOA they have received from PTC for 550 megawatts supply of power.
So the question is that, to close this, like, in a sense, to create the sustainable and unsustainable portion and recognize it as standard asset, the balance portion, what are the steps to be taken now from here?
First step is that they have got this LOA. Now it will be informed to the rating agency to find out the sustainable debt level because it's a great positive. Definitely sustainable debt will increase. And once that rating agency gives a sustainable debt, then we will proceed further. We should expect maybe 1.5 month we should be able to close this.
And just, sir, just to get a sense on basically kind of haircuts, which may be required in at least just 1 or 2 of them. Like RKM -- like, what is the sustainable debt level, like, general, just to understand what is happening in sector?
Very difficult to tell you, because until a rating agency completes the exercise. Because day before -- yesterday or day before yesterday, they got it this LOA. Other exercise has been completed by our officers already. But until as you come to know the sustainable debt level, you can't close the project. We have already made 44% provisioning in this. So we don't expect any more.
Okay. And sir, on the Supreme Court order, now -- so now, obviously, they have not given -- like, they have not stalled the RBI circular. They are just saying that, correct, like, I will hear kind of all the cases, right? That's what they have said. They've not said that RBI circular is not enforced. So till the -- and so what can happen now from here? Because till the time Supreme Court decides something, can you pass all the resolutions or no you cannot?
You would appreciate that as a prudent corporate body or corporation, though it is even today it's not applicable to us, we are a nonbanking financial company, but as a prudent corporate body, because we are consortium partners with private sector, with banks, it was applicable to them. So I declared all those accounts in which I was in the consortium with those banks [ and see ], in last financial year [ I said ] and I'm taking all possible sincere efforts to resolve these projects. After this honorable Supreme Court has given time till November, now I'm fully confident that with -- along with these public sector banks and private sector banks, we will be able to close some good projects, which we were not able to close because time was running out. So I'm quite confident, like KSK Energy, Jhabua Power, RKM and even Indiabulls project, Amravati, there is also OTS offer with us. So I'm really quite confident that within 1 month we should be able to close some good projects, which can fetch a good rate.
The next question is from the line of [indiscernible]
I have 3 questions. One is, can you talk about the incremental yields on each, one is refinancing loans, second is renewable and then the other loans. And correlated to this is, last quarter you had said that NIMs are expected to sustain at 3.76%, but obviously have come down. What is your outlook on the spreads in NIMs, both in the near term and in the medium term? And lastly, what is the expected credit cost under this ECL for your portfolio?
NIMs -- once we are able to settle these stressed assets, definitely NIMs increase. We will be able to bounce back almost to the same, around 4%. And as -- you may be aware, we are able to -- we are likely to close 3, 4 good projects like KSK Energy in which already actual bidder has been identified, 22 lenders are on board, remaining 5 within this time, which Honorable Supreme Court has extended, we are quite confident that we will be able to close this. It's a bigger account. Two, Jhabua Power, we have got a "one-time settlement offer." It is under finalization and we are hopeful that we will be able to close it. Similarly, Amravati, OTS, again, good offer. So similarly like Dans Energy [ has taken off ], they got PPA, now they started paying to us. So once the account in which we were not getting any interest, if they continue, they start repaying, our NIMs will improve. As far as spread is concerned, we are confident around 2.52% we will be able to maintain. But our volume is increasing this volume. And moreover, there are competitive pressures. We have to be little realistic. Earlier we used to have spreads in that range of 3.8% or 3.9% that was not very much realistic. But now I think 2.5% to 2.54% it is realistic. And we are quite confident because 82% of our -- in my portfolio is government utilities where we offer interest rate according to the category of that, A plus, A, B. So it's a mix of different interest rates, so we will be able to maintain the spread with the help of those government utilities. Even private sector also it depends on the rating of the developer. So in some cases -- and it is risk related.So in yield, also, you were talking about, we are refinancing some renewable projects, some thermal projects, also. In renewable, we will be able to and we are very, very meticulous in appraising competitively risk -- aggressively competitive bids of renewable projects.
So what is the difference in yields between, let's say, refinancing renewable where you're seeing more competitive. And other kind of -- is the difference meaningful in terms of incremental yields for these projects?
Very difficult to say, but yes, on greenfield projects, yes, definitely, yields are more.
No, the question is, if you were to disburse more on the renewables, which obviously is competitive, then obviously to mean that NIMs will continue to trend lower as the renewable percentage increases.
On greenfield projects, we are not able to offer such competitive rates, but for refinancing, yes. We see the effectiveness of the proposal that a project is running well for last 2, 3 years and the beneficiary is NTPC or [indiscernible]. It is with whom they have signed [indiscernible]. It is important for our appraising team. If it is with the states, we are very, very conservative. If it is with NTPC or [indiscernible] we offer very attractive rates. So it depends. It's in mix.
And lastly, what one should assume the expected credit loss under ECL for our portfolio going forward?
We feel that sufficient [indiscernible] has already been made under this ECL mechanism and on settlement we don't expect any further to be taken on accounts.
Our next question is from the line of Manish Karwa from Deutsche Bank.
Just on your foreign borrowings, how much have you hedged up till now?
38%.
Okay. And under Ind AS, how does it work? Does it -- the gain that you made in this quarter of INR 423 crores, is it related to the hedge that you have done?
Yes, portion -- that pertains to that high portion also. But if you see that we have made some actual loss also, which is appearing on the expenditure side. And after consider -- as the [indiscernible] is dependent on INR 200 crores. What we were seeing as [indiscernible] crores, the net effect is only INR 200 crores.
And given the fact that now rupee has depreciated, it now roughly means that in the next quarter, when we do our accounting, my interest expenses would be higher assuming the unhedged potion will have to be passed through the interest expense? Is that the way it will work?
Interest is already -- 85% of interest portion is already hedged.
But 85% only for this year, right? But in the following year that wouldn't have got hedged?
It is for the duration only. For the whole duration of the loan, 85% interest is already hedged.
Okay. But the repayment of it has not been hedged.
Repayment is 58%. As far as the interest rate is concerned, 85% is already hedged. But due to this fair valuation, yes, there will be some impact on property, ultimately. But that will be offset by the way expenditure also, that expenditure on foreign exchange variations.
I think the accounting -- from accounting purpose, what we are doing is, we're raising that we have done in quarter 1 that will be immediately booked, the translation loss, whereas the raisings we have done before 1st April 2018 that will be on an amortization basis. So for those raisings, the impact on translation loss will not be that much. Whereas for the fresh raisings after 1st April 2018, full impact will be taken. So that is how the accounting is being done. That's how frequently growth have come in this year.
And how much have you raised after 1st April?
After 1st April we have raised $300 million -- $600 million.
$600 million.
And this is not hedged?
No. $300 million is hedged. And $300 million is that -- for my 10 years, it is a bond, for 10 years, which we have not hedged so far.
It is not required to be hedged according to RBI guidelines.
No, sure, that's fine. But given the fact that the rupee has depreciated, this will have an impact on our earnings.
But 10 years is long period, no? It is only book adjustment. Let us see -- currency is very volatile, the foreign exchange. But we feel that it will not [ diminish this way ] for a long time.
But the majority of the portfolio will be amortized.
Okay. And under Ind AS, you have compared June '18 quarter versus June '17 quarter. And in the June '17 quarter there is an impairment allowance on financial instruments. That is about INR 1,100-odd crores. Is to do with NPA?
[ It is NPA only. ] There is an ECL provision, which we have made in the Q1 of last year.
Okay. And since you have already now adjusted almost all of it through reserves, incremental impairment allowance will not be much?
Yes, that's right.
Fine. And then why are we -- under Ind AS, why are we still accounting for deferred tax liability now?
Tell me again?
Do we need to account for deferred tax liability under Ind AS?
[indiscernible] and [indiscernible] both has to be accounted for.
Thank you. Ladies and gentlemen, due to time constraint that was the last question. I now hand the conference over to the management for closing comments.
Thank you very much. Thank you so much.
Thank you very much, sir. Ladies and gentlemen, on behalf of Prabhudas Lilladher Pvt. Ltd., that concludes this conference. Thank you for joining us, and you may now disconnect your lines.