PTC Financial Services, the non-banking financing arm of power trader PTC India, is diversifying its portfolio as existing bad loans from the power sector continue to stress its balance sheet. In an interaction with Sesa Sen, managing director & CEO Pawan Singh discusses plans to enhance profitability.

Amid the current liquidity crisis, are you mulling increasing interest rates? 
Generally, it’s a tough call to increase interest rates for an infrastructure project as interest cost is one of the major components of output cost and may sometimes have implications on project viability. Recently, majority of banks have increased their interest rates, we are also repricing our assets.

For any NBFC, major sources of funding are bank credit lines, bonds, ECB, etc. A large portion used to be taken on short term basis also, like commercial papers (CP), etc. Fortunately, our exposure on CPs is nil and major portion of our funding was long term, back to back basis. But, post-ILFS event, few banks have avoided funding to NBFCs because of their own limitations and this is impacting growth. Going forward, we expect situation to ease.

Are you looking at diversifying your credit portfolio?
Initially we were funding thermal/hydro power plants which, in 2012, were as high as around 70 per cent of our loan book. But, we realised that these projects involve numerous risks... having direct impact on project viability.

Hence, we have diversified into renewable energy, ports, roads, logistics etc., and reduced our exposure to thermal/hydro assets to a large extent... this exposure may come down to single digits by the end of the current year. Now, we are also exploring new sectors like Hybrid Annuity Model (HAM) projects in infrastructure segment; structured loans to further diversify operations... We also have some scope in non-infra projects.

What is the current status of stressed assets?
Our stressed assets were around `1,700 crore — majority of which were from thermal/hydro power plants. On taking charge, my first focus was to convert our stressed portfolio into profitable business. Till date we have resolved around 50 per cent... and realisation is expected in a couple of months. 
Our average CAGR is around 27 per cent, whereas, in the last couple of years, our stressed loan portfolio has reached a peak... hence, our profitability has been impacted to that extent. On ploughing back our realisations from resolved assets into income generating ones; our profitability will automatically increase.
 
What is your outlook on the power sector?
The power sector was on a consolidation phase in recent years. In traditional power, especially for stressed assets, ownership has changed hands for many projects, after re-assessing project viability.  Going forward, this will certainly help lenders rotate stuck money back into business.