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 the 4Q FY '23 Earnings Conference Call of Power Finance Corporation hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shreepal Doshi. Thank you, and over to you, sir.
Thank you, Yusuf. Good afternoon, everyone. I welcome you all to the earnings conference call of Power Finance Corporation to discuss the 4Q FY '23 performance of the company, industry trends and business update. We have the senior management team of PFC with us represented by Mr. Ravinder Singh, who is the Chairman and Managing Director; Ms. Parminder Chopra, who is Director Finance; and Mr. Manoj Sharma, who is Director, Commercial. I would now like to hand over the call to Mr. Ravinder for his opening comments. After which, we can take question and answer. Over to you, sir.
Thank you very much. A very good afternoon, everyone. I welcome you all to this conference call. It has been more than a year since we last connected and I'm delighted to have the opportunity to update you on the performance of Power Finance Corporation for the fourth quarter and financial year ending March 2023.
The last year has been a year of revival for both the Indian economy and PFC. As we step into 2023, the economic environment appears even more promising than anticipated. And I believe it will continue to drive CapEx growth in the power sector.
The key highlights for the financial year 2023. Now let's start with the key highlights of the performance of PFC. Standalone performance in financial year '23, PFC delivered the highest-ever annual profit of INR 11,600 crores marking a 16% increase from financial year '22. Even in quarter 3 2023, PFC recorded the highest quarterly profit of INR 3,490 crores, representing a notable 34% jump from the previous year.
It brings me a great joy to share that PFC has been consistently breaking its own profit records for the past 2 to 3 years. At PFC, we have always emphasized on maximizing returns for our shareholders. With the final dividend of INR 4.5 per share announced on Saturday, the total dividend for FY '23, reaches INR 13.25 per share, representing 132.5% dividend per share.
With this, PFC continues with its trend of delivering extraordinary shareholder returns. On the dividend front, I want to address the queries of often received from retail investors on when the final payment -- dividend payment will be made. I would like to inform that the dividend recommended by the PFC board will be approved by the Annual General Meeting following which the dividend will be paid to the shareholders.
Now let's move to some key financial indicators. The yield for FY '23 stands at 10.04% versus 10.22% in FY '22. This is more compared to the previous year but remains within our targeted range. This dip can be attributed to interest rate cuts implemented over the past 2 to 3 years.
The cost of funds for FY '23 saw a 20 basis points increase resulting in cost of 7.51% compared to 7.30% in FY '22. This rise is mainly due to increase in market rates on account of RBI policy tightening, driven by yield and cost of funds movement, the spread for FY '23 is at 2.53% and NIM is at 3.36%, both within our guidance range.
The CAAR remains healthy with a CAAR of 24.37% and Tier 1 capital of 21.61% as of 31st March 2023. These levels give us sufficient flexibility to our borrowers, particularly the government sector where PFC is not subject to RBI limits.
Moving on to the consolidated performance. PFC Group delivered a strong performance in FY '23. The group's loan asset book crossed INR 8 lakh crore mark, reinforcing PFC's position as the largest group in the Indian power sector space. Furthermore, the consolidated PAT for FY '23 reached a new high of INR 21,180 crores, that's a 13% increase from FY '22.
Now turning to PFC's loan asset side. I'm happy to announce that we have achieved a substantial increase in disbursement for the fiscal year 2023. We disbursed a remarkable amount of INR 85,760 crores, representing a 67% increase compared to the disbursements of INR 51,240 crores in the previous financial year.
It is worth noting that COVID-19 pandemic had a dampening effect on our loan asset growth over the past 2 years. However, I am pleased to share that we are witnessing a revival of the economy, economic activity post pandemic, which coupled with lending to distribution sector and government schemes has been instrumental in driving the uptick in our loan asset growth.
Our stand-alone loan book has demonstrated strong growth with a double-digit increase of 13%. As of March 31, 2023, our loan book stands at an impressive INR 4,22,500 crores compared to INR 3,73,000 crores as on 31st March 2022. As we look ahead, we maintain an optimistic outlook for the growth of our loan asset book. Building upon the positive momentum we have witnessed this year, we anticipate the loan book to grow at a similar pace in the coming years.
Coming on to the asset quality, I am pleased to share that our continuous and active resolution efforts over the past few years have yielded exceptional results in addressing nonperformance assets. In the last 1 year itself, PFC resolved 3 stressed assets amounting to INR 4,400 crores. These assets include Southeast U.P. power transmission, Jhabua Power and in Barath Energy Utkal. As a result, our stressed asset book has decreased by 21% from INR 20,900 crores as on 31st March '22 'to INR 16,500 crores as on 31st March 2023. Consistent resolution efforts have led to lower net NPA ratio in the past 6 years. For FY '23, our net NPA ratio stands at an impressive 1.07% reflecting a significant decrease of 69 basis points from 7.76% in financial year '22.
Furthermore, our gross NPA levels have also witnessed a substantial decline. In FY '23, the gross NPA levels decreased significantly by 170 basis points from 5.61% in FY '22 to 3.91% in the FY '23.
Moving on to the update on resolution status. We currently have 22 stressed assets with a total value of INR 16,500 crores in stage 3. Out of these 22 projects, 13 projects worth INR 13,900 crores are being resolved under NCLT, while the remaining 9 projects amounting to INR 2,600 crores are being resolved outside NCLT framework.
On the provisioning front, I would like to mention that successful resolution and optimization of Stage 3 assets during the year, has contributed to provisioning reversals without any additional credit cost. It is crucial to note that although in absolute terms, building against Phase 3 assets have reduced but we have enhanced the overall provision coverage ratio on Stage 3 assets from 69% in FY '22 to 73% in FY '23. We firmly believe that these provisioning levels are adequate to support future resolutions.
Now I would like to provide an update on the liability side. In FY '23, PFC raised a total amount of INR 76,000 crores from both domestic and foreign sources. As of March 31, 2023, our outstanding borrowing stands at INR 3,62,630 crores. Looking ahead to the next financial year, that is FY '24, I would like to share that PFC Board has approved the borrowing program of INR 80,000 crores. This program aims to raise funds from both domestic and international markets through various instruments, including bonds, term loans, commercial paper and other suitable avenues.
On the domestic currency front, I would like to highlight that our low-cost 54EC portfolio, which has a coupon rate of 5% witnessed that the market was 65% increase in FY '23 compared to FY '22. As of March 31, 2023, our outstanding 54EC bonds amount to INR 6,600 crores, a substantial growth from INR 4,000 crores as of 31st March 2022.
Turning to our foreign currency side. we have successfully raised U.S. dollars equivalent $1.66 billion in foreign currency during the year. In line with our objective of diversifying our borrowing, these funds were raised in USD and Japanese yen. And through a combination of products such as foreign currency term loans, [ FCNBD ] loans and loans from development banks.
While borrowing in the foreign currency exposes us to exchange risk, I want to assure you that we have been consistently monitoring our ForEx positions to mitigate this risk. Currently, our exchange risk hedge ratio stands at approximately 68%, a significant improvement from 55% last year. Moreover, we have hedged 92% of the exchange risk for portfolios with a residual maturity of up to 5 years, including 100% of exchange risk for U.S. dollar loans with a residual maturity of up to 5 years.
With these measures in place, we firmly believe that PFC's bottom line is adequately protected from foreign exchange fluctuations. Before I close, I would like to share our strategy for the coming year. First and foremost, our business priorities will be closely aligned with the targets and thrust areas set by government of India, especially in the energy transition as well as the strong reforms.
On the generation side, in line with government's energy transition goals, PFC would continue to tap renewable energy business. On this front, I would like to share that PFC recently undertook one of the largest financing deals in the renewable energy space within which we have refinanced JSW Energy loan of INR 6,112 crores for renewable energy projects of [ Metra ] Group, which has been recently acquired from them.
You know right now India's energy transition landscape is quite exciting with newer technologies being explored to reduce carbon emissions. Some of the emerging technologies that are now being explored for commercial expansion, are green hydrogen, patty storage, pump storage and offshore wind. PFC's thrust in coming years is to actively target these technologies and contribute in making India a greener nation.
On this, I would like to further add that while going green is undoubtedly the way forward, but energy security is also crucial. Recent events such as energy crisis faced by European countries during the Ukraine-Russia war, have highlighted the need for additional conventional generation capacity to ensure grid stability and with the ever growing electricity demand.
Therefore, while renewable energy will be a focused conventional generation funding, will continue to be a part of our lending business, although not at the same scale as in the past. Also, government is looking at reducing carbon emissions from the existing coal plants by retrofitting them with carbon offsetting technologies. We see that this is another potential lending opportunity for PFC in future.
Moving on to the distribution sector. It is currently one of the top priorities for the government as it is -- as it plays a critical role in improving the overall health of the power sector. To improve the operational and financial health of discoms, the government has launched the Revamped Distribution Sector Scheme in 2021, and late payment surcharge fee in 2022.
PFC and its subsidiary REC are the nodal agency for RDSS implementation. And all eligible states and UTs have been allocated between PFC and REC equally. RDSS has an outlay of INR 3,00,000 crores, covering smart metering and infrastructure projects, of which around 60% will be from government grants and the balance will be the counterpart funding from PFC or REC or states own resources for infrastructure laws. The smart metering shall be implemented in PPP mode.
Before the counterpart funding starts, the action plan submitted by state discoms, got to be approved and the government grant portion is to be released based on the achievements of a milestone. I would like to share the action plan approval processes complete for nearly all eligible states of PFC. Further sanction is being awarded by discoms and the grant release cycle has started. Around INR 1,679 crores of grant has been released so far. With the progress we have made, we expect counterpart disbursements under RDSS to commence towards the end of FY '24.
Also in this context, I would like to highlight that the scheme is playing an important role in bringing financial discipline in the state discoms by the way of regular publication of quarterly accounts, timely submission of annual accounts, timely release of subsidy and payment of government dues, tariff orders, et cetera, which are some of the important qualification conditions for release of funds under the scheme.
Coming on to the LPS scheme, the LPS scheme was introduced in around June 2022, which has shown promising results with a 40% reduction in outstanding dues of discoms to gencos within just 10 to 11 months. PFC and its subsidiary REC are the key financials for the scheme. So far, PFC has sanctioned around INR 47,900 crores, of which 35% has been disbursed. That is around INR 16,700 crores. The remaining balance is expected to be disbursed in the course of next 1 to 2 years. On the distribution side, RDSS and LPS are the 2 schemes where we envisage major business opportunities.
Now turning to the recently added business line for PFC, which is infrastructure funding. This is one of those milestone decisions which will play a crucial role in PFC's long-term business growth. Diversified to infrastructure lending for the natural extension, given PFC's vast experience of financing electromechanical components of infrastructure projects. The idea is not to shift focus from power to infra but to gradually build it over, creating a separate business line as the power sector matures. But yes, it will be forming part of our future lending business going forward.
Since receiving approval in August 2022, PFC has already sanctioned around INR 16,650 crores and disbursed around INR 1,000 crores. These funds have been directed towards projects such as ports, irrigation and fiber net. Additionally, it is important to highlight that we have initially focused on specific sectors within the infrastructure domain. We remain open to funding all types of infrastructure projects.
We understand the significance of diversifying our portfolio and expanding our capabilities. Therefore, we are actively working on building our expertise and strengthening our team to effectively cater to diverse needs of the infrastructure sector. In this direction on 26 May 2023, we have entered into an MoU with RITES for providing technical assistance and support in financing of infrastructure projects.
Lastly, I would like to share some promising figures that demonstrate potential growth for PFC. Currently, we have approximately INR 2,31,600 crores of sanction in our pipeline, which we plan to disburse over the next few years. Moreover, we have entered into memorandum of understanding worth INR 90,000 crores with various state agencies in the fiscal year 2022-'23. These strategic agreements are aimed at extending financial systems across the power sector value chain. Notably, we have signed significant MoUs with government states like Andhra Pradesh, Uttar Pradesh and Madhya Pradesh, as well as with Kerala Infrastructure Investment Fund Board and Mahatma Phule Renewable Energy and Infrastructure Technology Limited, MAHAPREIT.
These collaborations will not only support the power sector, but also contribute to the growth and development of infrastructure as a whole. It is important to emphasize that the project sanction under these MoUs will span several years, providing a valuable and sustainable business pipeline for Power Finance Corporation.
In conclusion, we remain optimistic about our future growth. By leveraging favorable market conditions and maintaining our commitment to prudent lending practices, we expect to continue growing at a similar pace as we have witnessed this year. Thank you very much. And now we are open to questions.
[Operator Instructions] First question is from the line of Dhaval from DSP.
Congrats on good performance. I had 2 questions. First is relating to the spreads and margin. So sir, this year, we saw a decent reduction in spreads from 2.9% to 2.5%. Going forward, where do you think spreads will stabilize given the rise in cost of fund that we are seeing right now. So any comments here would be useful, both on the repricing as well as the cost of fund side. So that is the first question. Then I have one more question.
So you are going to add with the second question? Or should I reply to the first one?
Sir, you can reply it, then I'll ask the second one.
Okay, fine. So as has been indicated, our spread has decreased. And basically, the -- our interest rates, we had implemented the decrease in the interest rate. And then there was an increase, which we had done of around 165 to 300 basis points, we had decreased. And then we had increased the interest rate in December '22 and March '22. So that effect of increase is yet to materialize. And on the borrowing side, the interest rates have increased. So our spreads have decreased, as you had indicated by around 40 basis points. And going forward, we should be maintaining the spreads within our guided range.
Okay. So sir, you're saying that this 2.5% spread is sustainable going forward with the repricing that you've taken in December and March, is that correct?
So further also, we are reviewing our interest rates. And based on that, let us see if we have to increase, we'll go ahead.
Okay. And sir, what is the magnitude of price increase you've taken in December and March? Cumulatively, what price increase we have taken?
So in March, we had increased by around 10 to 50 basis points across different category of projects. And in March '23, it was 25 basis points across the board, excepting for renewables.
Understood. Got it. Sir, my second question relates to asset quality. So you indicated the INR 16,500 crores Stage 3 between NCLT and outside NCLT. I just wanted to understand within NCLT, the big accounts would be KSK Mahanadi and Lanco Amarkantak, would -- to be the biggest part now?
Right. You are right.
Okay. And sir, any comments on both these projects? Where are we on the resolution front and any possibility of either of them happening in FY '24?
So KSK Mahanadi is under NCLT and the consolidation of the different SPVs is under NCLAT. So that is under -- that is the ongoing position as of now. And with respect to Lanco Amarkantak, a letter of intent was issued to PFC projects and REC consortium and the resolution plan has been filed with NCLT. So we are waiting for the decision of NCLT.
Understood. Apart from that, sir, any other project under NCLT, which is large and likely to see resolution in FY '24?
So one of the projects is Jindal Thermal where the proceedings under the NCLT have been stalled, but we are in discussion with Maharashtra genco for taking over the project. So let us see what happens based on that discussion. And another project is East Coast, which is under liquidation. And Maheshwar Hydel Project is there, which is -- which was admitted after a long period of more than 4 years, it was in between -- under NCLT. But now again, the this year, IRP process has been stayed, and we have filed with before NCLAT for early hearing in this case.
The next question is from the line of Arjun Bhatia from Bowhead Investment Advisers.
One clarification on your loan growth guidance. So you said 2024 to be similar to '23. So you mean loan growth should be around 13%, which is very -- in Q4 FY '23.
So now we have started funding infrastructure. So let us see what type of projects -- we are getting a lot of projects in infrastructure. But there is a restriction that we can only sanction around 1/3 of our total assets -- the total sanctions during the year for infrastructure. So going forward, because the base for the last year was slightly lesser. So we have to see whether we will be able to maintain the same growth or not with respect to the percentage.
Sir any percentage number that you are targeting in '24? say 10%, 11%, 12%, 13%, now could it be lower.
You're not very audible. Your voice is not clear.
Yes. Am I audible now?
A little bit better.
Yes. No, I'm saying this loan growth of '24, so any range that you have say between 10% to 12%, 12% to 13%?
So we should be around double-digit mark.
Okay. And my next question was any chance of PFC being a nodal agency for the financially renewable projects?
So we have taken up with the government of India for becoming a DFI for energy transition. So that was not accepted by the government. So we have been trying to get special differentiation from the government of India. And going forward, we were trying to become a focal agency for lending to renewable energy transition.
Okay. So when you say fiscal agency, so is there like any like formal process to that? Like have you again applied to some authority for that?
No, we have not applied, but we are in discussions with the Ministry of Power and Ministry of Financing. And as you are aware, we have the largest loan book for renewable energy of around [ INR 28,000 ] crores.
Right. Yes. And just on the infra segment, do you have any disbursement targets for FY '24 or FY '25?
So disbursements, we are getting the figures from our borrowers. And we think that we should be at the same level, almost the same level with economy reviving and a lot of renewable projects coming up and also transmission projects. And obviously, the funding to RDSS will also start, and we have the counterpart funding from PFC and REC will also be required.
Got it. And then lastly, on this INR 2.3 lakh crores of sanctions implying which is very impressive that you said you have as of now. So how much of this can convert to disbursements in FY '24 and FY '25?
Could you repeat that?
Out of the total sanction pipeline of INR 2.3 lakh crores that we give, which is very impressive, how much of that can convert to disbursements in FY '24 and in FY '25?
So the implementation of the project mix will take around 2 to 3 years for implementation. And some of the recent projects we have funded are infrastructure projects, which may take a longer time. So the disbursements will follow the implementation.
[Operator Instructions] Next question is from the line of Manish Agarwal from PhillipCapital.
Couple of questions from my side. One is on your infra sanctions. So if I look at REC, this year have sanctioned almost INR 85,000 crores and we have done somewhere around INR 16,000-odd crores. So what is the difference in the sanctions, is that some of the projects we were not comfortable and hence we didn't entertain?
No, I think REC has sanctioned a major through that Mumbai Metro. So there they are executing the loan documents. And we have -- it is not that we are adverse to funding these projects. Initially, we have taken exposure to the refinery projects, and the other projects ports also, we are under disbursement also, we have [indiscernible] the ports.
Sir, any particular reason why you are averse to metro funding? Is it because of tenure or high risk involved there?
We are inclined to funding metro. We are not averse. We have received DPR for the metro project also, and we are going to fund these projects. So we are not avoiding these projects.
Okay. My second question is on your interest reversal this quarter. I understand the large part of that is because of interest reversal in Stage 1 and Stage 2. So any particular reason why we are doing that? Or is it because discom rating has improved and hence, we are now reversing that?
I would -- our Director Finance would take that question.
As you know, during the Q3, when we have announced the results, we said that there is a change in the discom rating and as a result, around INR 900 crores to INR 1,000 crores additional provision was required to be made based on the annual rating exercise. So the rating exercise is carried out on a half yearly basis. So when we have done the next half year basis reviewed the ratings, so the lot of discoms have complied with the conditionalities and submitted their accounts based on which they have been upgraded and major, as you rightly said, the major amount is on account of upgradation of the discoms.
For the scope of interest reversal there?
See, discom rating as I told you that is the half yearly exercise. And if there is further improvement in the overall functioning compliance and financials of the discoms then definitely the same will be reviewed.
Got it. I have another question on Lanco Amarkantak. So there was some news that D plan is not comfortable with the current structure of REC/PFC bidding. Any comments on that? And when do you think is the feasible date for completion this revision?
So we would like to clarify, there is no regulatory hurdle in the PFC and REC bidding that bid for Lanco projects. And the resolution process is going on, as I had indicated that the resolution professional has filed the application with NCLT in our bid, which was accepted.
Okay. And any time say you would like allot to this or wish to early to take call?
This is a legal process, which is there. So we will refrain from giving any timeline..
The next question is from the line of Jigar Jani from B&K Securities.
Two questions. Firstly, we have seen a sharp increase in renewable energy allocation in the generation segment. So just wanted to understand whether the margin profile for renewable generation projects is a bit lower than normal generation projects. If you could comment on that? Because in the slide, you have mentioned that the yields are lower for these kind of projects. So if there could be any commentary on that.
Renewable industry has always been our thrust area. And we have lower interest rates for these projects because government of India has also a target of 500 gigawatts of renewable energy to be there by 2030. So we have to support that. And obviously, as I had also indicated, we have done refinancing projects for JSW and where more than INR 6,100 crores was sanctioned and out of which INR 3,400 crores can be disbursed. So these projects have a lower calculation period also and they are implemented. So we take larger exposures to these projects also because financial closure is required by the renewable for early and processing is also faster for these projects.
Okay. Understood. And sir, for the ECL exercise, I believe this is based on FY '22 numbers. But the current numbers for the ACS-ARR gap and the AT&C losses if you look at the current number, we have gone up as compared to FY '22 level. So when you do [indiscernible] next time, does that negatively impact their ACS model now?
So the number which you are talking about, there is -- the quarterly numbers will be there and the yearly number will be different from what we have seen earlier also. So we will go by the annual number.
Because -- I believe you said it's a half yearly exercise, so [indiscernible]
So whenever there is a change in any information which we received from the -- in the accounts or some accounts are given to us, then only we can [indiscernible] Otherwise, it is an annual exercise, which is we do on behalf of the Ministry of Power.
Sure. And just last question. Is it possible to split the private sector loan book into like genco and transmission and distribution if it is possible?
The private sector is around 20% of our total book. And we will provide you the details with respect to the generation, transmission, distribution. Our distribution is hardly there is an exposure [indiscernible] let us follow up.
[Operator Instructions] We'll move to the next question from the line of Niharika from Aequitas Investments. .
I just want to understand why have you increased our PCR from 69% to 73%. Is there increase in risk, which we perceive or some change in the regulation?
Could you repeat that? We could not get.
Sir, my question is on the PCR. So have we increased our provision coverage from 69% to 73%. Do we perceive more risk increase? Or is it some regulation because of that which you are doing there?
No, that is only majorly on 1 project that is TRN Energy where the provision has been increased even though in absolute numbers, if you have seen that our provisioning is overall on the basis of stage 3 is lower. But with the resolution of the asset and the lower NPAs, the increase in the TRN Energy thing that this has been increased.
So in TRN and Maheshwar increased provision and basically, in absolute terms, this has obviously decreased and percentage terms, rates have increased.
Got it. And my second question is how much percentage of our book will get reset in this current year? And what will be the impact on NCLT get further drag down this year?
So we have this policy of resetting in 3 years. And so maybe around 1/3 will be reset this year.
And will it be dragging down our NIMs further? Or do we see that it will be at the same level because of the reset?
No, it appears that it will be at the same level.
Okay. And with the AT&C losses narrowing down and the target of ARR and ACS gap to be zero in like another 3 to 4 years. How do we see that it's going to impact PFC's book? Do we see that the book size would decrease? And how much should it reduce because of all the narrowing down?
With the financial health of the discoms improving, obviously, the overall, our portfolio assets will be on a better footing.
Okay. But do you see that some quantum that our book will reduce because of let's say ACS and ARR gaps narrow down to zero?
But there is going to be addition in the infrastructure requirement for the power sector to grow and additions will be there in transmission, distribution, so that we see -- this is a growing sector. And there, [ Bhatia ] you know that all the households have been electrified now the consumption there will increase, energy requirements will increase and the requirement of expansion of the network will be required. And then the renewable synergy is going to come in a big way and evacuation from this renewable energy will also be required, so there will be a substantial CapEx requirement for transmission and then down below distribution also.
Okay. And my next question would be on the spread on RDSS and LPS. So is it like sub 2.3, 2.4 because it is state guarantees? What's the range of the spreads we have on RDSS and LPS loan scheme?
So in both cases, we are going to -- this LPS we are going to get a state government guarantee, so obviously, our -- we give a lower interest rates to them, and our spreads will be lower in these cases.
So is it like sub 2.3, 2.4 or sub 2 any...
That we have to see the overall, where we have around INR 2.5 crores. We have to see that. Our Director Finance would like to add.
So this is in line with the normal business operations, as sir has said, that we offer 25 basis point reduction in case of common guarantee. So only that concession has been given since all these loans are [indiscernible].
Okay. And my last question would be on the spread on infra and EV sector that we are doing. So are we having higher spreads in renewable on this, on infra and on EV?
These are the new areas which we are going to fund. And we -- it is a project within the energy transition area and we can have a lower spread. But for other infrastructure projects, it will be slightly higher because -- that we perceive and the new areas which we are entering into.
The next question is from the line of Chintan Shah from ICICI Securities.
Yes. Congratulations on good set of numbers. Sir, I had 1 question largely on the yield front. So in terms of fixed and floating book, how much percentage of our book would be fixed and floating? Or is it that it is entirely flipping?
The majority of our loan book is floating in nature because as indicated where interest rates are reset after every 3 years.
Sure, sir. In terms of the borrowing -- foreign borrowings, on the borrowing side, sir, how would we -- that mix -- it is also largely floating? or it will be a mix of fixed and floating.
No, there we have mostly fixed rate borrowing. So that is above 70% would be fixed rate for us.
Okay. And sir, one thing you mentioned in the opening remarks that we have seen a reduction of 165 to 300 bps decline in yield, so that decline was during what period that you have just mentioned? And the reason would be the competition, right?
So no, no, no. Not exactly competition. At that time since September 2020, we have reduced the interest rates to during -- up to December '22 by 165 to 300 basis points. So there was competition also. And during that time, the interest rate regime was also lower, so we were able to borrow at a lower rate, and we pass on that benefit to our borrowers.
Sure. Sure. Got it. And largely in terms of the hedging cost, I just wanted to understand from the accounting perspective or for the hedging cost for the foreign currency borrowings that would be accounted under interest expense? Or would that be a separate line item?
Our Director of Finance, would reply to this question.
The hedging cost is forming part of the interest expense.
[Operator Instructions] Next question is from the line of Chintan Shah from JM Financial. .
I just had 1 question. In this quarter, there was no dividend declared from subsidiary REC, and we have a statutory mandate for the same. So how should we read this?
Could you repeat that?
Yes. So REC -- that our subsidiary, REC did not declare any dividend this quarter and there is a statutory mandate to do. So I just wanted to understand any particular reason, is there any change or something that we should be aware of?
No, there is no requirement as it is, statutory requirement is not there, but we are hopeful we'll get the dividend.
And if you see the last year also, last year also, along with the first quarter results, they have declared the final dividend.
Okay. So in Q1, we should expect 2 dividends. One would be the final one and the normal interim one that we will declare? Is that right?
We won't be able to comment on that.
The next question is from the line of Punit Srivastava from Daiwa Capital Markets.
So my first question is on this yields and ratios that you have given this time for the full year. Can you please have the quarterly ratio as well because that will help us a lot to understand the quarterly movement.
Our Director of Finance -- so we will share these numbers with you.
Okay. And the other question was on the margin front. I mean I believe you already have spoken about it, but I just wanted to understand like whether -- how the cost of funds are moving quarter-to-quarter, like whether we expect cost of funds to go up further from here or remain like stable? How do you expect the cost of funds to move from 7.5% levels?
So last quarter, if you see the interest rates have hardened. And going forward, I think we should be stabilizing at these revenues. And obviously, it depends on the market, and we are linked to the international market. So let us see what happens.
Actually, the question I was asking about the quarterly is because if you see the 9 months margin -- net interest margins were reported at 3.37%. And then in for full year, it is reported at 3.36%, so there seems to be almost flat, but the numbers are showing that margins were under pressure. So that was the reason I was asking about the fourth quarter because there seems to be some adjustment happening somewhere because 9 months to full year, the margins are showing flat numbers.
There has been some reduction in the yield. But if you see the margins that we are able to maintain, I think Q4 margin was still around at 3.39%. So whatever additional numbers you require for the Q4 you may please let us know, we will provide you.
Sure, I got it. I'm just sorry, if I can include 1 question. Would you have some kind of ROE target, which you internally look at and if you like to share that.
We do not have any target as such.
The next question is from the line of Dhaval from DSP.
Sir, just one question relating to the credit cost for next year. I mean, this year, we saw some write-backs on a net basis. So next year, would it be safe to assume that the credit cost should be less than 20 basis points? I mean, given that there are still large projects under various stages of resolution.
We're not able to say that because most of these projects, as I had indicated are under NCLT, how much time, yes we are lingering in, on for quite some time and all we are able resolve this, so we are not having any target with respect to that.
The next question is from the line of Rohan Mandora from Equirus Securities.
Just wanted to understand on the infrastructure segment, like how are we looking at let me say at the public projects and private projects? And what was the sanction in FY '23, which is yet to be disbursed in FY '24 and what is the pipeline of sanction for FY '24?
So PFC's loan asset is mostly in the government sector. And our first reference for the infrastructure projects also will be to take up some government sector projects. However, we have funded in electric vehicles et cetera, which was in the private space. And as indicated, we have sanctioned loan for the ports and there we had a disbursement of around INR 1,000 crores. And moving forward, we would -- these new type of projects, energy transition projects are there, which we will be taking off like from storage schemes. And this offshore wind comes off, green hydrogen project come, we will be taking off these projects.
And sir, what is the sanction pipeline for FY '24? Overall -- at an overall level?
This, I think we can share. We do not have the figure as of now. We will share it.
As and when any project is posed to us that we initially do the appraisal and based on that, the viability of the project, be it in the private sector or it is a government sector. So after that only, we will be taking up to the sanction as per our competent authority. So that will be known in the near future.
The next question is from the line of Shreya Shivani from CLSA.
I just have 1 doubt. When you say that you have done repricing in December of 10 to 50 bps and in March of about 25 bps. Does this mean that the new disbursals that will be happening would be higher, although the floating rate, like the older ones are also getting repriced. Like I'm just trying to understand that sentence really means?
So after we raise our interest rate, we raise or decrease or increase, the future disbursement will be done at that way. And whenever the loan comes already existing loan comes for reset, it will be reset at that time.
Okay. Got it. So whatever portion of loans will be getting reset now will get reset at either 25 bps higher or 20, 25 bps higher? And the disbursements will also be at this higher rate, that's my understanding.
You are correct.
The next question is from the line of Satinder Singh from Eon Infotech Limited Investments.
Congratulations on the good disbursement growth this year. Sir, you mentioned about the various opportunities before us in terms of energy transition with discom reforms and also infra lending. What are the top 3 concerns that you have as the leadership of PFC?
Could you repeat that last part?
What are the top 3 concerns that you have, sir, so the opportunities you made clear, sir. What are the top 3 concerns that concern you as leader of the company?
PFC.
So these are the new areas which we are getting into, and we have to be -- the credit appraisal should be, I think, a challenge for us. And as has been indicated, we have signed MoU with RITES for doing maybe sort of traffic studies or for with respect to -- they have experience in infrastructure projects, we'll be taking that expertise.
Okay. So -- and what are concerns, sir? What are the challenges that you see?
And then the new type of projects which are coming in energy transition. So these will require some sort of viability gap funding if you see green hydrogen or offshore wind. So initial projects will be taking off. But subsequently, we will need lower cost of funds for funding this project. So that gives some [ fiber ]. So challenges there that our borrowing should be -- we are looking at special differentiation from the government and raising funds from outside which are cheap. So that is the challenge for us to decrease our cost of borrowing.
Okay. Okay. Sir. And any comments on the competitive intensity. So this year, our fee and commission income has fallen by almost 50%, even though the disbursements have been steady. So how do we explain that? And few comments on the competitive intensity of our business?
So I will tell our Director of Finance, to answer that.
The fee and commission income also includes the component of prepayment premium. Actually, this year, our prepayment has been on a very lower side. So we have not earned any prepayment premium, which has led to what you see as a reduction in the fee and commission.
Last year was prepayment was not happening to what level there were -- previous year too then after COVID, then the banks were having a lot of liquidity and they were giving offering lower interest rates to the projects which were commissioned, which we had financed. So there was a prepayment, which was happening. So the prepayment premium, we do not raise for any of our borrowers. So that was being paid. And last year, it was not happening -- the fee income has come down.
Right. And on the competitive intensity, as the health of the power sector improves, concomitant risk is that you have other lenders come in and willing to take that risk, okay? So some comments on the competitive intensity, sir, how has it changed in the last 12 months?
No, we have this additional potential norms, which Ministry of Power has indicated which along with PFC and REC, other banks have to also follow this. So if additional potential norms, we are meeting, then obviously, the banks also can offer. And PFC has an advantage that we offer longer tenure and the amounts whatever is required can be taken from PFC, so that advantage is there for PFC and we understand the sector.
And the main thing as compared to the earlier years, recent past such as the liquidity has dried up for the banks which has led to, as we said, that lower prepayment and accordingly lower competition from the banks.
Right. And finally, sir, we've seen greater disbursement to the private sector. So the share of private sector from 17% as of end of FY '22 was 26% for the complete FY '23 and in fact even 32% for the last quarter. So is this a sign of things to come? Do we expect this private sector to go up to this 25%, 30%, 35%? Or is PFC trying to consciously wanting to keep it to the low teens and hence lower risk? Because all our spillovers or provisions are for slippages are on the private sector.
So as you are aware that mostly the requirement of the country for power is increasing and all the new generation capacity is coming in renewables. And within renewables, most of the projects are private sector projects. So obviously, our book with respect to the private sector will increase going forward. If we have -- as we are funding these renewable projects as per the requirement of Government of India also to have a capacity of 500 gigawatts. So this private sector portfolio, I think, will increase in the coming years.
Ladies and gentlemen, this was the last question. I would now like to hand over the conference over to Mr. Shreepal Doshi from Equirus Securities for the closing comments.
Thank you, Yusuf. Thank you very much to all the participants for being part of the call. And we would like to thank the management of PFC for giving us opportunity to host the call. Thank you.
Thank you very much for this conference call. Thank you very much.
On behalf of Equirus Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.