REC Limited
NSE:RECLTD
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REC Limited
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Ladies and gentlemen, good morning, and welcome to the Rural Electrification Corporation Q1 FY '19 Earnings Conference Call hosted by Edelweiss Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Shah from Edelweiss Securities Limited. Thank you, and over to you, sir.
Thank you, and good morning, all of you. This is Kunal Shah from Edelweiss Securities. We have with us today on the call, Dr. P.V. Ramesh, Chairman and Managing Director; and Mr. Ajeet Kumar Agarwal, Director of Finance from Rural Electrification Corp., particularly to discuss the Q1 FY '19 earnings as well as to share their perspective on the developments in the power sector. So over to you, sir.
Thank you, Kunal. Thanks. This is Dr. P.V. Ramesh here, a very good morning. Thank you so much for taking your time to be with us today this morning. I will just take 5 minutes to highlight some of the key elements of today's presentation and then we will have an opportunity to interact. And we will be as interactive as possible. And before I get into the specifics, let me highlight some important factors with respect to the context. Number one, what we are noticing is the increase in the demand for power is going up. And it's, for the first time, month-on-month, it has gone up about 8%. And last Thursday night, the peak demand in the country for the first time touched 172 gigawatts. And the increase in demand in Maharashtra state alone is to the tune of 22% compared to the same period last year. So overall, we are seeing an increase in the demand for power. And we expect it to accelerate. And I'm happy to report that under Saubhagya, we have already electrified 40 million households. We have another 17.5 million to go before 31st of December. We are on an average electrifying about 150,000 households every day. And all this will translate into an additional demand and a big push at the same time big investment is taking place in infrastructure, strengthening in the rural areas, in the urban areas. And this should again even out those infrastructure bottlenecks for a long time held back the development of the rural areas and increase the demand for power. Now we are also noticing a significant increase in the renewable energy push. Several states in the country have come up with policies for both renewable energies and more importantly the e-mobility and the new technology [indiscernible] and the fact that our overall loan book, 4% of the total loan book is for renewables is an indication of the growth in this segment. At the same time, we are also noticing a significant improvement in the overall governance and operational efficiency of the DISCOMs. And this again should all go well in the coming days. And this, of course, is, let's say, qualified, which may not given across the country. But there are several parts of the countries, several DISCOMs, we are seeing a much better performance. And friends, this is the sort of background in which I thought I would set the REC's performance for the first quarter. You would agree with me when I say that REC, by its [ very ] business model, is really in the long-term power infrastructure development. So it's not always appropriate to judge the quarter-to-quarter performance. Nevertheless, let me -- I'm happy to report to you that the company has adopted the Indian Accounting Standards for the first quarter. And accordingly, we have aligned all our reporting in accordance with the Indian Accounting Standards system. And we have -- if you see the overall -- overall loan book has grown by about 17% compared to the last year first quarter-end, when we were INR 2.8 lakh crores. Now we stand at INR 2.42 lakh crores. Our total income has increased by 12% during the first quarter compared to the first quarter of last year. The net profit has increased by 37%, again comparable with the last year. The earnings per share has increased to INR 7.44 compared to the INR 5.45 last year. The loan book, of course, the value hovered around 17%. This year -- this quarter, we have raised, notwithstanding the fact that because the interest rates have gone up, the bond rates have gone up, we've been able to maintain our borrowing at 7.28%. Now friends, the most important thing, of course, is that I'm happy to report that there is no credit impairment in the public sector loans, which constitute about 86% of our loan book. And I'm also happy to report that our, as I've said, our renewable disbursement has been quite significant to about 18% of the total disbursement and 16% of the total tranches during this quarter. And much more importantly is the provisioning that we have made for the current quarter. We have made a provision of almost about 47.4%, which is the highest. Now we expect a trend for improvement in number of [indiscernible] standard. And we will discuss deficits during the presentation.Overall, we believe that we are set on as fast a growth trajectory. The performance still today when we look at it, is on a fast track. With reference to the [indiscernible] assets, we are moving forwards with the Pariwartan ARC, the Power Asset Revival through Warehousing and Revitalization, which has received strong support from the Parliamentary Committee on Energy as well as the Reserve Bank of India in its submission to the Department of Financial Services [ Indian level high court ] and also in our discussions. So we are [indiscernible] in that direction as well. And then we are working with the other lenders to find amenable resolution from the other assets. So overall, I would like to end my brief presentation on an extremely positive note both for the power sector and overall for the company. Thank you.
Yes, so we can start with Q&A session.
[Operator Instructions] The first question is from the line of [indiscernible] from [indiscernible].
Sir, why has your statement of your financial assets gone down this quarter?
Madame, if you look at it, the REC has now adopted the Ind-AS from this quarter itself.
But previous quarters, they would have been listed according to Ind AS 3.
Madame, that is all -- if you look at there has not been an increase in the NPAs, which we reported on 31st of March 2018. What has happened in the adoption of Ind-AS, the incremental provisioning has gone up. Because earlier, we had been providing the reference to the [indiscernible], which is [indiscernible] asset class [indiscernible] Reserve Bank of India, which is [indiscernible] in terms of aging of the particular NPL. When you switch over on the new method of calculating, this is a fairly new concept. And this implementation is to be done from first quarter 2017 onwards. And accordingly, whatever assets were recorded under such are recorded NPLs during that particular year. They have all been incrementally provided for during those 2 years and their accounts have been recasted as you must have seen. When we presented this quarter accounts, we were also presenting the June '17 accounts, indicating therein what had been the impact had it been recasted based on the Ind-AS, what we are adopting now. So what has happened, there has not been any increment on the NPAs, no incremental NPAs. And just the incremental provisioning we have netted out as per the new requirements. So the gross NPA, if you have seen, must have been at 8.12%, which was already reported 7.7%. Another project of ITP [indiscernible] because of the new norms, we have to reset this project. And once you reset a project, which is a performing project, also classified as NPL. In this specified period, which is 1 year in the case of [indiscernible]. So that is all incremental, which has been reported. And accordingly, the provisioning has [indiscernible]. They have done the whole methodology, where these assets were [indiscernible] incremental [indiscernible] required to be done. And accordingly, the company has met [indiscernible].
[indiscernible] impairment, it also has come down to INR 131 crores from [ INR 772 crores ].
It's because of the new asset which I had just discussed. And we, as matter of prudence, have provided some incremental provisioning [indiscernible].
But your losses have come down, impairment losses.
The headline losses may be [indiscernible]. If you look at my provision coverage ratio as of 31st of March, it was up 20% because we have adopted [indiscernible] the implementation of several [indiscernible] circulars. And as a result of which, we have classified certain of the assets, which are [indiscernible] as NPAs. And since 31st of March 2018, we have been providing for the provisioning as further Reserve Bank of India guidelines. Now since we have made provisioning for the Ind-AS standards as against INR 3,500 crores of the provisioning, which was existing as on 31st of March 2018. And as [indiscernible] INR 9,300-and-odd figure. So [indiscernible] ratio is almost 50% on the NPAs, which have been reported since 31st of March '18.
And so what are the factors driving growth in the T&D business?
There are 2 -- with reference to the distribution segment, there is -- there are 3 important initiatives, [indiscernible] programs of government of India: the Deendayal Upadhyaya Gram Jyoti Yojana, the Saubhagya and the Integrated Power Development Scheme. Now these are actually catalytic investments. They provide the nucleus for liberating much larger investment into capital system strengthening. Now that's exactly what the DISCOMs are doing. And DISCOMs have committed themselves through UDAY for improving their operational efficiency and achieving power for all within a specified time frame and which specifically includes bringing down the transmission and commercial losses to less than 15% by end of this financial year. Now this would require a substantial investment in upgrading the distribution infrastructure, which the DISCOMs are now currently undertaking. It estimated they will require about [ INR 150,000 crores ] of investment currently of the 54 DISCOMs every year annually in order for them to keep pace with the new increase in demand and particularly now that all [indiscernible] has been electrified. And another 43 million households are being -- 40 million households are being connected to the grid system. So that is one area where it continues to be broad. But most significantly in the transmission segment, for the first time, both intrastate and interstate are each doing -- substantial investment is being done and there's quite [indiscernible] and [indiscernible] amounts to [ INR 1 lakh crores ], which originally started in industrial segment to create a national grid. Now the same is being done by several states, we have Jharkhand, we have Maharashtra, we have UP, you have Madya Pradesh and several other states. So part of it is [indiscernible] participation and part of it is the powering corporation. So we are quite active in financing both entities in this segment. So we continue to foresee a much higher investment in the strengthening the capital assets, both in the distribution and the transmission segment in the coming years.
And sir, how much growth is coming from refinancing and generation business?
Now generation, we are not refinancing. Let me make it clear that in the pure thermal or hydro, there's only [indiscernible] of the central state joint sector, new projects that are coming up in the generation segment. There are no ITPs in the traditional fossil fuel-based power projects. Now where the additional growth in generation segment is coming is essentially from the state and the central PSUs. And also there is now a growing demand for [indiscernible] infrastructure in order to comply with the tariffs protocols. Incrementally, the states are coming forwards for this additional, incorporating their plans with this infrastructure. But the growth really is coming in the renewable segments where new capacities are being generated and where, as you know, where we were the first Indian company to have raised nearly USD 450 million and the green bonds. And we have set up a green fund. We have a loan pipeline of EUR 200 million from the KFW and apart from our own business, which we are raising in the domestic market. So our major activity has now been creating additional capacity in the renewable segment. We have also set up a small technical assistance fund with KFW jointly with about EUR 2 million, which is we are using essentially to develop a funding financing pipeline to look at the financing models and look at the technologies that are appropriate so that our asset quality remains higher. So there is no refinancing as such. We are looking at new assets, creating new capacities. And there are others in that business, not us.
So is there refinancing in T&D business?
Pardon me?
Refinancing in T&D business?
Refinancing, no, not at all. I mean, clearly there's no refinancing. There's no refinancing [indiscernible]. We are the only ones there in the CapEx in the T&D segment. There is no other player. [indiscernible]
Okay. And sir, what sort of loan book growth do you foresee?
This has grown 17% last year to this year. We should sustain it at around 12% to 17% this year.
How much was earnings?
12% to 15%.
12% to 15%.
Our next question is from the line of Bunty Chawla from B&K Securities.
Sir, I'm on Slide 37, you have given the asset quality and provision coverage numbers. So can you share the stage 1 and stage 2 numbers for that?
If we look at Slide 37, stage 1 and stage 2 all grouped together is INR 2,090 crores.
Yes, sir. But can you separate it out for us?
So split it out, basically if you look at it, what we have done is -- so [indiscernible] on the state sector, [indiscernible], it is INR 389 crores, which [indiscernible]. And on the private sector, 1 or 2 projects [indiscernible] still accounted for some additional increment of provisioning. And [indiscernible]. So [indiscernible] provisioning on that account has been netted out. So if you look at the private sector, which is stage 1 and 2, we are still net of provisioning of INR 1,701. And on the state sector also together, which is roughly INR 208,000 crores with a provisioning of approximately INR 400 crores. So that makes a total of 2019 stage 1 and stage 2. And the balance is INR 9,316 for stage 3. Sum total of the provisioning net out is [ INR 11,406 ].
No, I was just referring like how much number [indiscernible] is stage 2. So can you give all the private sector because of this higher provisioning [indiscernible] all this private sector standard assets should be stage 2 also, [indiscernible]?
Yes, INR 1,014 is basically what you are referring to.
1-0?
1-4.
INR 1,014. Okay, sir. And sir, secondly, on the how you said this INR 19,651, these are in the private sector, which are currently NPAs. So can you share the [indiscernible] of projects?
Most of the projects are already in public domain. Just to give you an idea, we have like larger size, the Lanco Amarkantak, Lanco Anpara, Lanco Babandh [indiscernible]. These are the major projects [indiscernible].
So sir, are you expecting because of the [indiscernible] projects? So [indiscernible] around -- sorry?
No, we have made provisions, but we've been investing some of the asset where we are either looking in terms of the resolution process or going to NCLT. On an average, the provisioning in this kind of asset is not less than 50% [indiscernible]. So we feel that whatever provisioning has been net out, we should be getting further resolution plan. And as we [indiscernible], we are doing [indiscernible]. Sufficient provisioning in both assets has already been provided for.
Okay. And sir, during this quarter-end, can you then tell me what were the [indiscernible]?
There are 2 small projects. One is ITP [indiscernible] because of the new guidelines. We have restructured these projects [indiscernible] period [indiscernible]. But considering the fact that [indiscernible] whatever is carried out, it has to be classified as NPL. And [indiscernible] for Ind-AS is just 1 year. And we have already started performing [indiscernible] we hope that going forward after 1 year, it should be standard.
Okay. Last question, sir. During this transition to Ind-AS, what are the impacts on [indiscernible]? Can you comment sir?
In gross numbers? You are talking in terms of gross numbers or in terms of the [indiscernible] book shares? [indiscernible]
Sorry?
The total impact on our network is INR 6,000 crores.
INR 6,000 crores. Okay, sir.
The next question is from the line of Anupam Singh from Florintree Advisors.
Sir, just a follow-up question on the same Slide #37. If you could give us more color on the generation company on the private sector, out of the INR 18,500 crores outstanding with the NPA account, what amount basically [indiscernible] are up and running?
Okay.
[indiscernible] what amount is [indiscernible] plants that are up and running?
Okay. If we look at the plants which are up and running is -- let us talk of DAS Energy, which is a hydro project of 100 megawatts. They recently signed an [indiscernible] with the Haryana government. And [indiscernible], which is also up and running in terms of the captive power supply [indiscernible]. [indiscernible], where we have already acquired [indiscernible]. This is 17 megawatt project and we are already supplying 14 megawatts [indiscernible]. [indiscernible] is another project where this is 300 megawatt hydro, which is also up and running. Now you come to [indiscernible], which has just resetted. It's another project which is up and running today. [indiscernible], 2 units are working, [indiscernible] starts production very soon. So this is also up and running in [indiscernible]. And then Lanco Babandh is a classic case, where due to litigation, it has come to a state of NPL. It is 100% on the [ 400 megawatts ], 85% to 90% [indiscernible] also allowed them the incremental tariff of [indiscernible]. We hope that once we've been accepted by the UP, we should be seeing these projects coming back to the normal category. [indiscernible], which is a [indiscernible], is also up and running, is a captive power project. [indiscernible] is also performing at suboptimum level after [indiscernible] PPAs. These are big projects which we have [indiscernible]. So most of these projects in our [indiscernible] are already commissioned ones and are all already performing but at a suboptimal level [indiscernible] to 60%. And with tariffs, [indiscernible] in the past, it is not that sufficient enough to service the loans. Going forward, as the demand is likely to increase, and the government of India recently, they have guided the power of [indiscernible], where many of these projects have also bidded out. And then the second round of bidding is likely [indiscernible] by the PTC under the [indiscernible] of Ministry of Power. So some of the options [indiscernible], we are quite optimistic that going forward in a year or 2, these projects must be working at their optimal levels.
In terms of your question actually on the INR 18,500 crores of generation [indiscernible] in private sector, this INR 18,500 crores, if you quantify in [indiscernible], will be up and running plants, which is plants which are [indiscernible]?
So [indiscernible].
You can see it under INR 27,500 crores, which are up and running.
[indiscernible] what are the projects we have which are up and running will give you the total idea.
Yes.
The next question is from the line of Amit Premchandani from UTI Mutual Fund.
Just wanted to understand the status of the power projects which have come under [indiscernible] and the case has gone to the Supreme Court. What is the status of resolution? Is it stalled because of the Supreme Court's case? Or are you still negotiating with other banks and everybody is on the table to negotiate some of these power projects? What are the clear status? And is this the only [indiscernible] circular? Or do they stay also on [indiscernible]?
Let me try to understand. It was the Supreme Court judgment potentially [indiscernible] various decisions pending before different high courts, especially in the [indiscernible] high court, wherein different entities have challenged people in terms of the circular. So it basically transfers those decisions to the Supreme Court, so Supreme Court becomes the premier arbiter. And this is based on the petition filed by Reserve Bank of India, so -- and with reference to those proceedings, so it is not -- it has not [indiscernible] circular. The Supreme Court has not stated [indiscernible] circular. It's called in attention those proceedings that are underway in different courts. So it does not preclude the lending agencies from proceeding that the [indiscernible]. And also it does not preclude the lending agencies to file petition before the NCLT. So [indiscernible] underway, the consultation is going on between the lenders. And we are in the process of taking this forward.
Sir, any case that has been reported to NCLT over the last, say, 1 month then after August 27, when the deadline kind of expired?
[indiscernible]. No, none of our power projects have gone to -- none of our projects have gone to NCLT.
What is the deadline then?
The deadline was to be 27th of August. So however, because of this order of the Supreme Court, which have [indiscernible] both cases -- because we are not a lead lender in majority of these projects. So the lenders now filed petitions before the NCLT in some cases. Some are awaiting admission. A few, very few have been admitted. So while the process is on for admission, if there is a viable resolution, there is always a provision for implementing that resolution.
So if the deadline was 27th, I was just trying to understand why has no case been referred to after 27th of August? What are banks or [indiscernible] waiting for? Are they waiting for [indiscernible] for 2 to 3 months? Or they are actually not waiting for them, that it is just a [indiscernible] issue, and [indiscernible] 1 or 2 months, all the [indiscernible]?
Now this is Agarwal needs to be done on 27th of August onward, the 15-day window provided for to the lender to take to the NCLT. So that deadline will come into an end on 11th of September 2018 from 27th of the [indiscernible] this year which -- in order to have those kinds of [indiscernible] application to the NCLT. As you know, everybody is aware of, there's lot of litigation that's going on. And the supreme court has scheduled already till the 9th of September. It is not that this are what we are referring to as the power sector projects, which were some of them were under resolution plan and some are in the process of getting ready to be taken into the NCLT. So -- and [indiscernible] has come. But whatever the smaller other projects have gone to the NCLT, has gone to the NCLT. So what we are referring to the projects, which means regardless of the REC, so that we can take in -- most of these projects have not been referred to the NCLT as of today. But some of R&D process where [indiscernible] plan is being seen, are in the process to be referred to the NCLT but in respect of these numbers.
But since validity period expired, and [indiscernible] there's no this resolution, could you still hold it back and not [indiscernible], is what you are...
If you look at the resolution is that first of all, the lenders have to agree with the overall -- the broad parameter for the resolution plan. Then, once they agree to a resolution plan, it has to be referred to by respective boards or governance authority, who has the authority to say yes. So it takes a slightly longer time, as we know, specially in the [indiscernible] government, they answer about 80 to 90 days. Just keeping in mind that this will be the procedural issue and the respective lenders might have -- may be required to take it to their respective boards to put a -- changes on those kind of resolution plan. So that was the reason that everybody was asking for some kind of extension, but some of the plans and the discussions are in the [indiscernible] or not. So currently, clarity may be on 14th of November. Then hopefully, either we give [indiscernible].
So just to summarize, basically what you are saying is in some of the projects where there were the possibility of resolution plan, but if the deadline was not met for August 27 [indiscernible] and try to resolve it before November 14. And if they don't get resolved before November 14 and the -- [indiscernible] supreme court, you will have to move to either [indiscernible] or you have to make a decision. So [indiscernible] still have -- 1 month, you still have some leeway in terms of approaching the NCLT, depending what the interpretation is.
That is right.
Well, in terms of the earlier question about how many of them or what is the value of the FX that are currently functioning, it's almost 16,000 crores other than the [indiscernible] a minor one, [indiscernible]
Out of 18.
Out of 18. Shall we go on to the next one?
The next question is from the line of Amit Goela from Rare Enterprises.
Sir, some questions but mine have been answered, but just to repeat, going back to the slide of Page 37. Sir, you are saying that your total NPA like credited like about INR 20,000 crores in the private sector, on which you had provided INR 9,000 crores. Great. And you are saying that out of this INR 18,000 crores, INR 16,000 crores is functional. So you feel this INR 10,000 crores is adequate? And or if you provide one other INR 5,000 crores, your NPA problem will be taken care of fully.
No, no, there's slight -- so there is slight confusion. The total NPA is INR 9,651 crores (sic) [ INR 19,651 crores ], which we have provided for INR 9,316 crores. It's roughly about [indiscernible] almost 50% of the provisioning marks. This 50% is not, for the record, just to bring these [indiscernible] projects. Some of the projects have been made higher than the one the 50% is all about and some have been in the range of 30% to 40%, depending on how we see the advisability of our deals going forward depending on the project parameters. On overall basis, it is 50%. So the question which you have spoke is, that out of this INR 19,000 crores, how many are running projects. Approximately, INR 10,000 crores of the -- our debt exposure to growth projects, which are already running as of today. So what we are referring to, the -- out of INR 19,000 crores, INR 10,000 crores, the projects are under the operational -- are under operation, but they may not be producing enough power or their PPAs are not been extended and to be able to serving the loans of the lenders. But they are still operating. So the projects, which are not operating as of today, the bigger ones are the [indiscernible] kind of return. Still some of them are nearing completion. Some are already completed also, like the [indiscernible] are one where we have [indiscernible] exposure INR 2,300 crore, which is as today is not operated. But most of the projects are operating, so that what we are referring to INR 19,000 crores, approximately, INR 10,000 crores of the -- our exposure to these projects, they are already under operations. The balance, as of today, are not under operations.
Okay. Sir, if may suggest? If you look at it, this says [ power demands corporation ] on their presentation had given project-wide exposure limit and, well, what is the status. If you can do that same, it may be much easier for us to understand it, sir.
We can give it. We can. If you want any specific project, we can give you right now the figures. We have all the [indiscernible] because there are not many in our city. So if you have any particular project to be referred to, we can provide what kind of [indiscernible] and what kind of exposure do we have.
The next question is from the line of Amit Rane from Quantum Securities.
Sir, how much is your [indiscernible] impact of your [indiscernible] on our results?
[ 2,652 ]
[indiscernible] okay. And sir, in the next -- with #7, [indiscernible] results are released. So what number you would serve -- interest income on credit-impaired loan assets amounting to INR 327 crores is not recognized. So how much is that amount of pending [indiscernible] assets underlying this INR 327 crores?
No, this is to be provided for all the assets which are [indiscernible] on the opening balance. Of course, whatever is closing, we will net it out. And the initial mechanics are, the income could still recognize. Whatever [indiscernible] most of these assets are classified as NPL are under resolution plan. Doesn't matter for those. As we have been doing in the past also when the [ RBI ] announced they're getting implemented, we have not been accounting for income and they're certainly getting classified as NPLs. But under the new regime of the Ind-AS, when you have this credited loss, the income can still be accounted for. And this income was calculated by the company as was resulted from certain [indiscernible] and the feasibility work on the credit loss calculation. So they have come out with the [indiscernible] 17 or 18 projects. But ultimately, those impact it, that doesn't matter for them. Let us not account for this event.
Okay. So my question is, how much is the amount of the 17, 18 projects? How much are you [indiscernible] to the 17, 18 projects?
We can share this detail with you via e-mail if you want.
We can -- you can coordinate with Mr. Kunal, and he'll forward to you details.
Sure. And sir, how much is the amount of stage 2 assets totally?
Are you referring to the provisioning for...
No, stage 2 assets. Data on stage 2 assets for REC.
Well, INR 1,014 crores [indiscernible].
That is only for private sector, right, sir?
There is no -- there is nothing in the [indiscernible] fixed percent of the exposure is all standard. There is no -- any of these are state-run entities in either [indiscernible], transmission, distribution and gencos.
Okay. And sir, how much in the budget is the level of foreign currency [indiscernible] for FY '19 that you are planning?
As per the Reserve Bank of India, we have got an approval [indiscernible] dollar to be paid during this year. We have already set up an [indiscernible] program of $3 billion. And we are targeting this type of [indiscernible], the company started in 1 44 [indiscernible]. As of today, we have been doing regular bonds from the Singapore and [indiscernible] markets, and this will be the first. Maybe in the next month or so, we should be -- we are planning to tap the U.S. market under Section 144A.
The next question is from the line of [ Ankit Chaudry ], [indiscernible] Securities.
Just wanted to know what is the FY '18 net [indiscernible]?
What is the question?
[indiscernible]
[ 32,277 ].
The next question is from the line of [ Sanjiv Gupta ], an individual investor.
I just wanted to know the impact of the rupee devaluation and the rising rate of interest on our bottom line.
Well, if you look at the rate of the interest and demand, the cost of borrowing has shown an increasing trend in the last 1 month or so. But we have been trying to raise the money at the most competitive ways. If that trend continues, then our lending rates are one of the lowest in the market today. Concerning when the stability comes in the domestic market in terms of raising resources by us, we will definitely be looking in terms of passing a part of it to our lending operations. And going forward, we don't anticipate much of an impact in our -- either in terms of yield or the cost of borrowing.
And so -- any impact on us for the rupee devaluation or rupee falling for the last [indiscernible]?
The foreign currency loss this year also this quarter, we had provided for almost INR 300 crores of the foreign exchange loss on account of currency devaluation. And in this kind, what are the levels we're looking today. If this continues to stabilizes at, let us say, INR 72, INR 71.5. We should be ending at the same kind of the losses in those counts in the next quarter. But similarly we should be having the similar kinds of gains in our hedge portion. So as of today, our unhedged portion is not that significant as we have a board-approved policy of keeping the open exposure, which is linked to the net worth of the company. And we can go as high as 35% of the net worth of the company in terms of open exposure. As of today, we have an open exposure to the tune of 25% to 26% [indiscernible]. And these are the recently concluded 10-year bonds, which is not mandated to be had as of today. So most of the hedged portion, we are having a sizable gain in terms of the stock.
The next question is from the line of Ishank Kumar from UBS Securities.
On the tax rate part, what should be our tax rate in Ind-AS regime? Because in Ind-AS, we don't need to provide for deferred tax rate.
Whatever tax is to be provided for. So what we are [indiscernible] in this quarter, the rate of Ind-AS was almost 33% -- 33% to 34%.
And it will stay at this level? Or -- because before, like 3, 4 years back, our tax rate was close to 27%, and then we had to provide the full tax liability to it, so it went back to 33%, 34%. But in Ind-AS, we don't need to provide for deferred tax liability, then it should go back to 33% -- to 27%, 28%.
We are providing for the both in terms of Ind-AS. So hopefully, we should be in the range of 32% to 34% going forward.
Okay. And in this quarter, sir, if you can give some number on what will the income from derivative and on foreign currency liability? And what were the provision in terms of amortization on ForEx loans?
The income on our hedge portion in the derivatives is around 560 crores to about 570 crores. And the foreign exchange losses, we have provided with around [ 270 crores ] or so, which is part of other expenses. And this has been credited as part of other income. And then what is the changes we have to make of the Ind-AS? Earlier in 31st of March, whatever the gains and losses were to be done on the foreign exchange side, which is to be amortized over the period [indiscernible] maturity of those particular loans. So we have an option, whatever loans we have raised in 31st of March 2018. We continue to follow the same practice of amortizing the gains and losses over the balance remaining maturity of these loans. But going forward from [indiscernible] 2018, whatever the income and the losses are incurred by the company in that particular quarter has to be accounted for. So going forward, any further [indiscernible] of the company [indiscernible] 2018 onwards, any gain or any losses under [indiscernible] shall be provided for in the current quarters. We have to follow the [indiscernible]
Okay. And on the spread side, our spreads are still close to 3%, which is fixed around 50 basis points higher than PFC. In short, is there any like target for our spread? Where do we see spread going forward in next 3 to 4 quarters?
Now if you look at it, as in the first quarter, we have not raised much of the borrowings in the first quarter. And we -- it has shown some decline in the cost of borrowing. But going forward, we are working internally with a target of 3% as a spread. And hopefully, we should be able to maintain it. And we just mentioned that we have not adjusted our lending rate in the first quarter. If the trend of the cost of borrowing stabilizes at these levels, then there is a case to pass on a part of this over foreign institutions also. So considering their adjustment in terms of our lending rates, we still [indiscernible] the cost of borrowing, the internal target is to maintain in that range of 3% and [indiscernible].
Okay. And on the last question on the loan side, how much percentage of our loan has a 3-year reset?
Almost 90% of loan book with a 3-year reset. Oddly, some of the [ renewable ] part of borrowers have started looking for a 1-year reset, but I don't think that the way [indiscernible] applies to the domestic market. Many people will again switch over to 3-year reset.
The next question is from the line of Sivakumar from Unifi Capital.
Sir, just to confirm, there is no restructured asset segment currently, right? [indiscernible] everything gross NPLs, right?
Yes, sir.
Sir, and increase in the provisions from around INR 3,500 crores to around the INR 9,300 crores, which has been during the quarter, the assets have been shown in the network, right, around INR 6,000 crores.
Yes, sir. And the net impair after adjustment of [indiscernible] of assets is around 3,500 crores.
3,013 crores.
3,013 crores to be precise.
Sir, and yes. In the media, we read that there was 7 power assets out of the reported 34 stressed power assets were thought to be resolved. But somehow, the private parties and Indian entities, which are interested in bidding for those assets, wanted to wait till the assets were dragged through NCLT. Can you share some -- what is the current status as to how will you progress in that regard? Because now you've got additional 2 months' time from the supreme court?
Well, as [indiscernible] NCLT has spoken, we are not -- we cannot speak on where or we are or they're looking at. But we have [indiscernible], which we have an exposure, which are being discussed among the lenders and also the NCLT resolution plan. So the broad parameters, the [indiscernible] been agreed by most of the lender, barring 1 or 2 smaller issues, which needs to be resolved. I think in this direction, there's a number of [indiscernible] lined up. Maybe the next week, the lenders are again meeting to see if those 2, 3 projects will be specific. This could be resolved also at the NCLT. And so at this juncture, it will not be appropriate for us to comment anything on this going forward what will be the reaction on the [indiscernible]. As to what [indiscernible] they look at it, it is their internal matter, so we should not be [indiscernible] comment on [indiscernible].
Got it. Sir, what will be REC's exposure to those 2, 3 assets, which will be -- which are closer [indiscernible]? You can quantify?
We have an exposure in -- in light of this [indiscernible], we have an exposure in [indiscernible] Amravati and [indiscernible]. So all put together, our exposure in these projects should be around 4,000 crores.
Sir, are you simply speaking, what would the haircut in terms of [indiscernible] basis, obviously, both in resolution?
Well, by the market indications, the -- seems to be in the range of -- the haircut seems to be in the range of 30%, 40%.
Okay. Sir, and it seems that even RBI has sent back your [indiscernible] resolution, asking you to make some tweaks to the regulations. So what are the status on that? And how will it pan out going forward?
We have -- actually, RBI has supported our proposal very well. They saw before submission, before Department of Financial Services. And also, [indiscernible] 40% tax, which is viable resolution [indiscernible]. Now for those assets which are commissioned and to be warehoused and managed to the demand which -- so in a way, RBI [indiscernible] written submissions as well in our discussions, have supported. We had earlier requested for further exemptions and for variance in the [indiscernible] framework. The one being the valuation of [indiscernible]. And we said that the economic value and the commercial value are grossly at variance, is likely to cause more [indiscernible] PPAs for some of these effects. And so I think the [indiscernible] needs to prep us on a transitional basis. It would be unfair to valuate, to set a value on these effects. So we proposed back the net book value, that is the principal outstanding minus the provisioning, what could be the basis for determining the value of a plant, for transport we have seen. And second was that we requested for a noncash transfer without an upfront payment. And the bank was not in favor of making an exception to our power sector alone. So accordingly, we have now reworked our proposal in harmony with the framework of the RBI, ARC statute. We will -- we are now moving forward [indiscernible] and filing the papers before the RBI for registration.
Right. Sir, what is the potential amount that will be onboarded onto this ARC once it is approved? You already working?
Yes, I mean, no, we estimate this would be about 10,000 megawatts should come before this. Because the REC saw an approximate number of projects, about 10 to 12, of which could be in the horizon for this framework for the [indiscernible] framework. So however, I mean, this needs to [indiscernible]. Just like any other revision has to be discussed with all the lenders and then taken forwards.
And REC will be putting in some money, sir, for the capital purposes of REC? Or will it be funded by [indiscernible]?
No. I mean, we have initiated deposits [indiscernible]. We worked on it quite hard, taking not just a REC-centric approach, but the sector-wide approach. Because this is -- I mean, our own -- as you see from our own reports, we have a limited exposure. But our interest has been of the overall power sector and also the fact that the future energy security of the country is so critical for all. So we have an interest in protecting these assets from that perspective, so that's how we worked out this proposal, and that is -- it was about initiative. We will certainly move it forwards, and we expect others to join. I mean, there are several other financial institutions and others who are interested in this. And we hope that they will come onboard, and that, that processes on, that complicated process. So it's not [indiscernible] alone by REC. No, that's not the case, but it will be -- it is being initiated by REC.
Okay. I think there won't be any funding the liabilities from REC side for the ARC rights. Basically that was my concern.
No, I mean, the [indiscernible] fee, maybe some marginal amount, but the substantial funding will come from the other sources.
The next question is from the line of [indiscernible] from [ India Capital ].
Sir, one thing I want to understand, that going forward, you've given under Ind-As. And obviously, you've taken the provisioning under the [indiscernible] metrics. So going ahead, the provisioning level should be much lower than what we have seen in the past. Even in this quarter, the provisions are only 130 crores. Is this the level we should expect going ahead?
[indiscernible] year.
Understood. Understood. Also, sir, secondly, on the NPAs. With regards to the INR 19,500 crore on the private side, do we expect any upgrades? Last quarter, on the call, you guided for about INR 3,000 crores of upgrade that we were expecting over the next 6 months. Within this INR 19,500 crores, are you expecting any upgrade in the next 2 quarters?
Yes, we are expecting some upgrades in the values which we have been discussing, that we have entered into a onetime settlement with sector power [indiscernible]. And [indiscernible], has already given a very favorable decision in terms of whether to additional tariff is to be paid to the developer, to the UPPCL, which is [indiscernible] final judgment on their behalf because of [indiscernible]. So we see that this asset can easily be settled asset in the books of all the lenders put together. And the advantages of the regulation in terms of [indiscernible]. And hopefully, both those projects' PPAs [indiscernible] have been signed. So we should be looking very aggressively in terms of involving these assets. And the power transmission is already likely to be commissioned in 10 days' time from now. And hopefully this asset should be also be the coming standard asset next quarter or so. So this [indiscernible] are very advanced in getting results and being upgraded, if everything goes well. And some of the asset, well, there is a market indication that this -- taken up of the settlement with the developer is [indiscernible] issue of some of develop the vendors are getting resolved. These assets can also be taken as a result which is not a very high haircut or a reasonable amount of haircut. Going forward here, now 5,000, crores to 7,000 crores of assets are under the advantage of getting resolved either way.
The next question is from the line of [indiscernible] from [indiscernible].
Sir, do you expect any change in the standard private books of -- that we have, the INR 13,000 crores?
No, I don't know that [indiscernible].
Ladies and gentlemen, in the interest of time, this will be the last question, that is from the line of [indiscernible] from [ HMI Investments ].
Apart from the provisioning that you mentioned on Slide 37, is there any [indiscernible]
Excuse me, sir. There's a lot of disturbance in your line.
Can you hear me now?
Yes, yes.
Yes, so apart from the provisioning that you mentioned on Slide 37, do we have any other provisions in terms of [indiscernible] provision or [indiscernible] that is there in the [indiscernible]?
Those normal provisions have already been made out in our book, will continue to be made out in the normal [indiscernible]. Those things are in addition to things we have been providing for.
Yes, so what is the amount of those provisions? If I can have the number?
Yes, just give us a minute, we'll give you the number. Meanwhile, any other question?
No, I think that's it from my side. It is only the number I need.
[indiscernible] the number.
Yes.
Sir, that was the last question.
Oh, that was the last question. Okay. Just give us a minute.
[indiscernible] the number.
We will mail you. If there are any questions, please...
Sir, would you like to add any closing remarks?
Yes. Yes. So thanks to all the participants for participating in the call, and thanks to the top management of REC for taking the time out and answering most of the questions. Thanks a lot. Have a good day.
Thank you. Thank you very much.
Thank you.
And we are always -- well, thank you for your support. Thank you for your time. And we look forward to working with you. If there are any questions, queries, clarification, please do feel free to write to us. We'll get back to you. Thank you very much. And thank you, Kunal, and thank you, Edelweiss, too.
Yes, thank you.
Thank you. Ladies and gentlemen, on behalf of Edelweiss Securities Ltd., that concludes today's conference. Thank you for joining us, and you may now disconnect your lines. Thank you.