 "Vikram Limaye")
For Infrastructure Development Finance Company (IDFC), infrastructure had been a booming segment. With new projects almost at a standstill, Vikram Limaye, managing director and chief executive officer, tells Clifford Alvares the company would have to look beyond infrastructure in the future. Edited excerpts:
The government has made some positive announcements in the power sector but infrastructure investment has slipped a lot the past two years. How long will it take to revive?
There have been some positive developments in the power sector and with state electricity boards but there’s more to be done and it will take a while before we see the benefits. In telecom, issues concerning spectrum have yet to be resolved. In roads, talks are on between NHAI (National Highways Authority), developers and the ministry to figure if some projects are stuck because of high premium payments and whether these can be adjusted. On an NPV (net present value) basis, developers get some cash-flow reprieve in terms of back-ending premiums. But that has yet to be resolved.
Beyond, the issues surrounding land acquisition and environmental clearances on time continue as bottlenecks. Unless some of those issues are resolved, fresh project activity will take some time to pick up. Even if those issues are resolved, it will take at least 12 months for investments to resume.
How much progress has there been in the Delhi-Gurgaon Expressway toll issue? How soon will we see a solution?
We are talking to all the parties and trying to resolve the issue. We hope for a solution soon. All the parties — lenders, concessionaire and NHAI — have made much progress but the outcome has yet to be decided.
We are looking at the interest of all the lenders and at all the solutions possible.
IDFC’s loan growth slowed considerably in the past quarter. How do you see the (coming) year?
A slowdown in infrastructure in general has had an impact on IDFC’s growth. Last year, we were able to grow at about 16 per cent, largely supported by refinancing of operating assets, due to our advantage of cost of funds. That opportunity doesn't exist now. For two to three months, as you know, the bond markets were unstable. Our loan growth now would at best be flat, if not marginally negative. In recent years, no project pipeline has been seen and this will definitely have an impact on the next two to three years, till new projects take shape.
What’s the exposure to the under-construction segment? How will it impact your net NPAs (bad loans)?
In an economic environment that has slowed dramatically and where interest rates are still high, stress will be seen. Our NPAs cannot continue at 0.2 per cent (of the total) when everything around us has altered so dramatically. People should expect NPAs to be in the range of 1-1.5 per cent and we maintain that stance.
How do you see your spreads now, as interest rates have increased and infrastructure lending is slowing?
We are doing low-risk, high-quality lending and, on a risk-adjusted basis, the spreads will narrow. In the past, our spreads were greater because we were implementing greenfield (new) development projects. With low-risk and high-quality projects, the same spreads are not available. We have stopped borrowing on our external commercial borrowing because, on a fully-hedged basis, these are more expensive than domestic borrowing.
Given the slowdown, how fare your other businesses such as asset management and private equity?
The asset-management business has done well and we have raised our assets under management. In private equity, we have announced the first closure of an infrastructure fund in a very difficult environment. We hope that the final close will happen at around $1 billion. The first close was around $650 million dollars. The investment banking and broking business has slowed down as deals aren't taking place.
How will a banking licence benefit your business? Banking is now very competitive.
Strategically, it's important for us to diversify beyond infrastructure. We can lend only to the infra segment and that, we see, can be quite volatile. Banking gives you the broadest sectors to lend to. It also provides a much broader product suite for your clientele. Today, we are unable to offer banking products to infra clients. Banking would not only help us service our clients better but diversify our asset book beyond infrastructure. And, RBI is looking favourably towards non-banks like us getting into banking.
Besides, we will be able to raise funds at a lower cost and potentially lower our risk across a pool of resources.
Building a bank is not easy. The cost of conversion is not small, either. There will obviously be a drag on the return on equity, due to the CRR (cash reserve) and SLR (statututory liquidity) requirements. You have to be willing to live with the long-term costs. But we have a Rs 70,000-crore balance sheet and so, the starting position is strong.
How will the banking licence affect your existing structure?
Only the lending and treasury businesses will go to the bank. The PE and other businesses are already under different subsidiaries. Under the NOFHC (non-operative financial holding company) rule, the bank will also be a subsidiary.
