The impact of RBI's new draft norms calling for higher provisions than standard requirements to finance projects will be different for Indian Renewable Energy Development Agency Ltd. and other power financiers, such as REC Ltd. and Power Finance Corp., according to IREDA Chairman and Managing Director Pradip Kumar Das.
The new higher provisions will not impact the company's profit after tax, but only its net worth, he said. "It will not be quite significant. 1.5% of provisioning is already there."
The Reserve Bank of India on Friday proposed tighter rules to govern lending to projects under implementation. The new draft rules include a classification of the projects as per their phase and higher provisioning of up to 5% during the construction phase, even if the asset is standard.
Das noted that 5% provisioning for a renewable company like IREDA appears to be a little harsh, given the company's loan book stands at Rs 59,000 crore and the net NPA is 0.99%.
IREDA's risk perception will be completely different from PFC and REC, and comparing these won't be fair, as 90% of their loan book is to the government and most of it is for fossil fuels, unlike the 75% from the private sector for IREDA, he said.
At the same time, the draft guideline is not only prudential but also a disciplinary mechanism, which will yield returns in the long run, according to him. People have not understood the draft guidelines, he said.
On April 26, the company was granted ‘Navratna' status by the Department of Public Enterprises. This status will give it a fair amount of autonomy and 5–10 bps of cost-of-borrowing improvement, Das said.
Shares of IREDA extended their loss from Monday and closed 2.64% lower, as compared with a 0.77% fall in the NSE Nifty 50.
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