Ladies and gentlemen, good day and welcome to REC Limited Q2 and H1 FY 2027 earning conference call hosted by Equirus Securities. This conference call may contain forward-looking statement about the company, which are based on the beliefs, opinion, and expectation of the company as on date of this call. These statement are not the guarantee of future performance and involve risk and uncertainties that are difficult to predict. As a reminder, all participant line will be in the listen only mode and there will be an opportunity for you to ask question after the presentation conclude. Should you need assistance in the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Shreepal Doshi from Equirus Securities. Thank you, and over to you, sir.
Thank you, Danish. Good afternoon, everyone. We welcome you all to the earnings conference call of REC Limited to discuss the Q2 and H1 FY 2027 performance of the company. To discuss the company's performance, we are pleased to welcome Mr. Jitendra Srivastava, Chairman and Managing Director, Mr. T.S.C. Bosh, Director, Projects, Mr. Rajesh Kumar, Director, Finance, and Mr. Mohan Lal Kumawat, Executive Director, Finance. On behalf of Equirus, we would like to thank the senior management of REC Limited for giving us the opportunity to host this call. I would now like to invite Mr. Supreet Pandya, DGM Finance, to take us through the presentation. This will be followed by the opening remarks from Mr. Jitendra Srivastava, CMD, REC, after which we will open the floor for question and answer. Over to you, Supreet.
Thank you, Shreepal, and thank you, Equirus team. Good afternoon, everyone. REC welcome you all to this Q2 FY 2027 and H1 post-earnings call. Just for kind information of all, the investor presentation has been uploaded on stock exchanges and also on the website of REC in compliance of SEBI norms. I shall now take you through the investor presentation for the quarter, which has been broadly divided into six areas, which is REC overview, financial highlights, operational performance, asset quality, shareholders outlook, and what we are doing in ESG at REC. As you are aware that REC has a successful track record of more than 5.5 decades now, where it has grown leaps and bounds and has rewarded its shareholders time and again with dividends, bonus shares, and it currently boasts of its strong financials with stable asset quality.
As a pioneer of new initiatives, most recently in 2026, REC has successfully launched India's first pilot issuance of tokenized corporate bonds under the SEBI regulatory sandbox framework. We have multiple strengths as a company, of which some are that we are the highest domestic rated company in India with AAA rating. Internationally, we are rated at par with the sovereign ratings of India, where we are rated Baa3 by Moody's, BBB- by Fitch, and most recently, Japan Credit Rating Agency has upgraded the international ratings of REC to A- and all are with a stable outlook. We maintain a very robust asset quality with healthy provision coverage ratio. We are one of the strategic leader in India's power infrastructure and logistics sector and are also nodal agency for major Government of India power sector reforms.
The most recent being the Rooftop Solar scheme, the RDSS scheme, and the India Energy Stack. We are also a major player in the renewable energy and creation of India's Green Energy Corridor. We have a diversified portfolio on our business side where we are funding across entire infrastructure and power sector value chain. Power sector value chain including renewable energy, conventional generation, transmission, distribution, infrastructure, and also logistics. We have the capability available to appraise, fund, and monitor the newer technology such as battery storage, pumped hydro, green hydrogen, nuclear, and all the new emerging technologies. We have won various awards and accolades across all the areas including corporate governance, financial reporting, risk measurement and planning. I am glad to inform you that most recently, REC has been awarded as the NBFC of the Year at the third annual Bharat NBFC & FinTech Summit & Awards 2026.
Coming on to the financial highlights. For the half year FY 2027, the loan book of REC has reached its all-time high of INR 6.17 lakh crore, which is a growth of 6% from the last year at the same time. The net worth has increased to INR 94,325 crore, a growth of 14% year-on-year. While maintaining such high loan book, the net credit impaired assets have sequentially gone down by 50% to 0.11%, which was about 0.24% last year same time. The total income of REC for the half year has reached to INR 29,068 crore, and the net interest income of INR 10,116 crore. The net profit for the half year has reached to INR 7,541 crore. The capital adequacy ratio, which gives an indication of the future growth potential of any company, we are comfortably placed at 24.04% against the RBI requirement of 15%.
Coming on to the broad areas of revenue and profits. The interest income of REC for the half year was INR 28,398 crore, while the finance cost was about INR 18,282 crore. Giving up profit before tax of INR 9,483 crore and resulting PAT of INR 7,541 crore. The key ratios of REC for the half year was the yield on loan assets was 9.57%, which was stable as compared to where we were in the Q1 of 9.55%. The cost of funds was 7.19% in the half year and the resultant spread being 2.38%. The NIMs have remained stable at 3.22% and the ROE is at 16.89%. The interest coverage ratio is comfortably placed at 1.52x and the debt equity at 5.69x . Coming on to the operational performance of REC for the half year and Q2.
In quarter two FY 2027, REC has disbursed INR 56,457 crore, which is 67% growth over the 30th of June quarter, the Q1 quarter of FY 2027. That is a growth of 67%. We have disbursement made across all the categories and disbursement remains to be strong. During the Q2, roughly 11% of our disbursement went into conventional generation, 17% into renewable energy, and distribution contributed 22% of the disbursements that we made in the Q2 FY 2027. On the outstanding loan assets, we continue to maintain strong AUM growth in Q2, which has risen by 6% from 31st of March 2026. In fact, 30th of June, if we compare, this growth is 5% as of 30th of September 2026. This growth has come across all the areas if we compare with 31st of March and 30th of September.
The conventional generation book has grown by 4%, the renewable has grown by 15%, and the IL projects, which is the area where we have recently diversified about three years back, is now constituting 10% of our portfolio and has grown by roughly 6% from the March quarter. This is a significant growth as compared to what we have seen across all other NBFCs, while we remain insulated by all the major geopolitical issues and the crude related issues and the monsoon era as well. On the outstanding borrowing front, the borrowings of REC has reached to INR 5.27 lakh crore, which is a growth of 4% from 31st of March 2026. Now I'll come on the asset quality. REC remains committed to continuously resolve its bad assets, which are very insignificant now.
In the current quarter also, we resolved one project worth roughly INR 4 crore, and as a result, our gross credit impaired assets have come down to 0.22%, and the net credit impaired assets have come down to 0.11%, which is significantly low as compared to the asset size on which we are operating right now. We continue to maintain a provision coverage ratio of roughly 51% on the NPA assets that we have right now. Let me tell you all, whatever NPA are there as of now are all in the state sector, and there have been no new NPA from last 19 quarters of REC operations. On the Stage 1 assets, we maintain a provision of 0.85%, and these Stage 1 constitutes about 99.26% of our total loan portfolio.
The Stage 2 assets have come down by almost four times from INR 12,350 crore as of 30th of June and has come down to INR 3,235 crore. And we are maintaining a provision of 4.5% on these Stage 2 assets as well. These all provisioning is giving us a comfort on the balance sheet. In addition to these provisions, we continue to maintain statutory reserves under 45-IC of the RBI Act and as required under Income Tax Act, which is about INR 18,736 crore and INR 1,200 crore respectively. Coming on to the shareholders outlook. We have continuously rewarded our shareholders with dividends. Last year, we paid a dividend of INR 18.55 over the face value of INR 10. In the current year also, we have declared a total dividend of INR 7.75, which includes INR 3.5 dividend which has been declared for the quarter two.
Let me tell you all this dividend is all in addition to the various bonus issue shares that we have given in the past, and we continuously maintain the 30% dividend payout ratio as mandated by the Government of India. The shareholding pattern of REC is also being given in the presentation. I wish to inform you that the shareholding of FIIs in REC has gone up from 15.76% as of 30th of June to 16.78%, which gives an idea that we remain to be one of the few companies in India right now where FIIs have continuously improved their shareholding. The earning per share for the half year has improved to 57.27, and the book value per share is currently at 358.21. So as for the current market share of REC, we are currently at a discount to the book value of 358.
I will quickly take you through to the ESG initiatives of REC. We are making continuous efforts toward ESG goals. Most recently, REC has started incentivizing its ESG compliant renewable borrowers. In fact, I am happy to inform you that we have been ranked first amongst 505 Indian financial sector companies in NSE ESG ratings. REC's renewable energy portfolio has continuously grown by more than 3x in the last five years and has reached to INR 86,660 crore as of 30th of September 2026. This renewable energy portfolio is across all the diversified areas, where solar constitutes 35%, pumped hydro projects constitute 14%, the hybrid 18%, and also hydro 13%. The ESG ratings has also been displayed on the website of REC.
If you need to ask any questions beyond this call as well, we have given our investor relations email IDs and also social media networks as well, where you can reach out to the investor cell of REC at any point of time. This is what the presentation is all about. Maybe I would request Chairman Sir to give his opening remarks, and then we can open the floor for the Q&A.
Thank you, Supreet. Very good morning to all of you and to my wonderful directors on the board. We stand here today talking to all the investors and shareholders of REC, and I would like to say that this quarter has been very good for REC. Quarter two and the first half of the year have shown remarkable improvements over last year. Today, I am very happy to say that we have a very high disbursement of close to INR 90,000 crore, out of which almost INR 80,000 crore is just in the power sector. This is the highest disbursement amongst all our peers for the first half of this year. While doing this huge disbursements, we have maintained our asset quality. Like I said, asset quality continues to be a very high priority area for us. We have brought down our overall net NPA by almost 50%.
Last year, it was close to 0.24%. As on end of this quarter, it is at 0.11%. That is almost a 50% drop in our net NPAs. Even if you look at our Stage 2 assets, our Stage 2 assets have come down by a factor of 80%. It was close to INR 12,500 crore. It has come down to roughly INR 3,300 crore. So I am sure all of you will appreciate that REC continues and will continue to pay a lot of attention on the asset quality of all our investments and all our borrowers. Apart from this, I am very happy to say that our renewable sector growth has shown tremendous improvement. Our RE portfolio loan book stands at close to INR 86,000 crore, which is 27% increase over last year.
Our infrastructure loan book also has increased to almost INR 62,000 crore, and currently, infrastructure accounts for almost 10% of our loan book. Power continues to be and will remain our mainstay, and I am very happy to say that the power sector itself is poised for a manifold growth over the next four or five years. If we look at certain projections by the NITI Aayog, the NITI Aayog predicts that India will need close to $5 trillion, that is roughly INR 500 lakh crore investment in the next 15, 20 years. Assuming that, like we fondly say that one out of every four light bulbs that glow in India are financed by REC, which is indicative of a roughly 25% market share. If we go by that, we are looking at funding opportunities close to the tune of over INR 100 lakh crore over the next few years.
Government of India continues its attention to the power sector. Recently, Government of India has announced INR 1.85 lakh crore project for strengthening the transmission sector of the country. The RDSS continues to play out. The Rooftop Solar scheme is growing leaps and bounds, and I am very happy to say that REC being the nodal project implementation agency for the Rooftop Solar scheme, we have achieved almost INR 55 lakh applications, installations, and our applications have touched almost INR 95 lakh against a target of INR 1 crore installations, which we have targeted by the end of this year. Our contribution in the RDSS continues to increase, and we work very closely with the states, and we are very happy that the states that we are handholding for the Revamped Distribution Sector Scheme are showing tremendous improvements in AT&C losses, and they are turning more profitable day by day.
I would also like to mention that while we are paying attention to business, while we are paying attention to government programs, we take a lot of pride in our ESG commitments and our ability to handle risks. I am very happy to say that our ESG ranking is the first among all 505 financial institutions in the country as per NSE ratings. This year, we are committed to trying to become the first carbon neutral organization. We are trying to ensure that our scope one and scope two emissions are brought down to zero, and we are very hopeful that in this financial year, we will become the first carbon neutral financial organization in the country. Apart from this, in risk, we have the ISO 31000:2018 certification, which further underscores our commitment and the importance we pay to risk management.
We are very hopeful that our systems will keep on evolving to serve our investors and to serve our borrowers better. As far as further growth is concerned, I am sure that's a question which is agitating the minds of everybody. As on date, we have already disbursed close to INR 90,000 crore, and we have set a target of over INR 2 lakh crore for our disbursements. Already we have shown a 6% increase. We are very confident of touching double-digit growth, and we are hopeful that we should be able to show around 12%-13% growth by the end of this year. All of you will appreciate that the environment right now is full of competition, and I am sure you are also aware that the power sector as such has de-risked significantly.
We are very proud that we are passing on whatever de-risking is happening in the sector, we are passing it on to our borrowers. Consequently, due to the competition as well as the de-risking of the sector, our net interest margins have come down slightly. However, we still maintain among the highest net interest margins in the sector, and we are very confident that our NIMs will not go down further too much. So combined with a high growth of over 10%-12% and sustainable NIMs of over 3.2%, we are fairly confident that this year again, we will deliver wonderful growth, and we will continue to create value for our investors and our shareholders. With this, I would now like to throw the field open to our callers, and our team stands ready to answer any queries which all of you might have.
Thank you one and all.
Thank you so much, sir, for the wonderful opening remarks. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Avinash Singh with Emkay Global Financial Services Limited. Please go ahead.
Hi, good afternoon. Two questions. First, if you can help, not sure if you had earlier explained. But if you help understand this NIM compression, what has led to this kind of sharp increase in borrowing cost? Is there kind of an increased hedge cost being part of your cost of fund and that kind of a and how sort of going forward, how this NIM trajectory will look like? So that's one. Second, more on the medium to long-t erm. I mean, of course, the CEA or the other planning bodies, they keep making certain projection of or other, I would say, maybe optimistic scenario of the coal-based thermal power plant that India needs by 2032 or 2035. But in reality, I mean, even when this coal capacity requirement being now projected to be higher, maybe 120 GW-125 GW over the next 7-8 years.
But in reality, the state, particularly state utilities, which are your typically, I would say, the target borrowers, have not shown any significant progress, particularly with the new thermal power plant. In that backdrop, how do you see your conventional thermal AUM and disbursement to be growing over next two, three years? Because these numbers, planning is one part, but if any capacity has to come by 2032, say, or considering five, six years of this same period, the things should have already had been in motion, but that's not happening. How do you see this conventional thermal power AUM and loan growth over the next three, four years? Thanks.
Good morning. This is Rajesh Gupta, Director, Finance, REC. As far as cost is concerned, before answering your question, I like to say that we are having a diversified source of borrowing. We are borrowing from ECBs, from domestic bonds, from term loan. Out of these three source of borrowing, only term loan is our floating borrowing basically. Other borrowings are of fixed nature. Either these were originally fixed or we have converted to fixed swap. Our term loan and a few of ECBs are of a floating nature, which is about 24%. In case of these floating borrowings, definitely there would be some pressure of costing also. But our loan book also of floating nature. Almost 25% of our loan book is also floating nature, where that increased cost would be compensated.
As far as PAT is concerned, we don't see any pressure. Otherwise also, I'd like to share that we usually do new things every year. Last year, we have done a zero coupon bond, wherein we could get concession of about 100 basis points. That was about 10% of our total bonds borrowing, which ultimately impact positive concession to 10 basis points on overall portfolio for bond borrowing. Similarly, this year also, we are trying to do new things. We are requesting Ministry of Finance for withholding tax exemption on our ECB. Similarly, we are also trying to have green bond basket mandate from Ministry of Finance. If anything would happen, there would be some positive impact on our borrowing part also. I don't think there would be any pressure on cost of borrowing also.
As far as other questions are concerned, I am requesting my Director, Subash, to please answer.
Yeah. In line with the National Electricity Plan, the minimum additional capacity planned under the National Electricity Plan by CEA is around 80 GW. Actually, from the baseline 217 GW, we are going up to 283 GW. Around INR 8.34 crore per megawatt. The capital investment requirement by 2031-2032 would be somewhere INR 6.67 lakh crore. So we have a potential of the availability, the target of some 30% share of the 70% debt component. So we are targeting somewhere around INR 1.8 lakh crore to INR 2.2 lakh crore by 2031-2032. I think that to meet the minimum, the evening peak and morning peak, that is going to happen now. Yeah.
Thank you. Our next question comes from the line of Sanket Chheda with DAM Capital. Please go ahead.
Yeah. Hi, sir. Sir, just on your guidance on growth of, say, 10%- 12%. This you are giving just for REC, or you see that that kind of a growth can continue once the merger is consummated, over 2028, 2029 as well?
Yeah. So right now we are talking about REC. But let me tell you, the merged entity will also have very significant synergies. I don't think that the merged entity also will face too many issues. I think the growth that we have set out for ourselves should hold for us, at least in the short- term. Let us talk about, see, the financial scenario and the economic scenario changes day- to- day. So it would not be very prudent of me to prophesize too much into the future. I would like to restrict myself to this financial year and just talk about REC right now. But having said that, the merged entity also, we don't foresee too many issues. We have very skilled manpower. The synergies of borrowing, the synergies of lending, the synergies of having a huge capital base, these are undeniable.
I don't think the merged entity will also face too many issues. But I would not like to hazard and put a figure for the merged entity right now.
Okay, sir. Just for REC, the other thing that I wanted to know is that where this confidence comes from. Has the competitive forces moderated? Like for last couple of years, we have had some headwinds from some of the unlisted entities like NaBFID also. Does the rate hike cycle lowers the competitive intensity from banks as well? Do we get to benefit on that front? Are there some forces which I think will play out in our favor, you think, and is the reason for you comfortably now saying that 10%-12% should not be a problem?
Yeah. Last year we had a record disbursement of INR 2.11 lakh crore, which was almost a 10% growth over the previous highest record of INR 1.9 lakh crore. But in spite of record disbursements, we could not show more than a 2% growth in loan book. The main reason for that was our prepayments. The prepayments last year totaled close to INR 1 lakh crore. So almost the entire advantage that we had in our record disbursements was totally negated by our prepayment cycle. However, if you will notice this year, our prepayments in the first two quarters have come down to only INR 19,000 crore. So even though our disbursements are at INR 19,000 crore and prepayments are only INR 20,000 crore, of course, I am differentiating this from the repayment and prepayments. Repayments are a natural corollary that will not affect anything. But prepayments is what we have to worry about.
I am confident that the prepayments scenario has peaked out, and now that we are entering an increasing interest rate cycle, I don't think prepayments will be a major issue for us. Yes, my confidence stems from the fact that yes, prepayments have peaked out. It also stems from the sense that banks have sectoral limits. So there are limits, even though they have excess liquidity right now, but they have sectoral limits, so they will not be able to lend beyond a point. The power sector is growing, so the appetite for growth and the appetite for funds in the power sector is increasing. The RE sector is increasing. The transmission sector is going to get a big boost. You will have noticed that the cabinet has also come out with a very unique INR 23,000 crore biogas plant, and that comes under the core structure of infrastructure.
And that is one area where we are very keenly watching as to what are the business opportunities there. So yes, transmission sector is a huge business opportunity. The biogas sector is a huge business opportunity. The distribution and the generation and the conventional power sectors continue to remain a good opportunity. Infrastructure is booming. Shipping is coming up. We are looking at certain new sectors. So all in all, I do not see growth dampening in any way. And we are confident that our strong financial credentials, our deep pockets, our ability to lend long-term, will keep us as a preferred lender choice.
Sure, sir. And lastly, on margins, you said that you do not expect margins to now come down. And on cost of fund, I understand there is a limit that we can do, but on yield side, like in last quarter, one of the south-based account, which once the rating was available, was offered a lower rate. In that context, do you see any downside on the yield side, per se, to some of our lendings and our pursuit of keeping those accounts with us and stop them from getting BT out or anything? So our yield has fallen, but do you think now these are the yields which are sustainable or there is more downside or upside to that?
Okay. So regarding yield, I like to say that since yield curve is already moving towards north, so downsizing may not be much in our yield. But in past we have faced not only competition, but also we are passing on some benefit to the state sector also, which is already completed. I think almost all the proposals of rebate or concessions have since been settled down. So we do not think there would be much downside in the yield. Otherwise also, we are hopeful that our yield would be slightly improved in view of the sector is facing interest rate pressure. Moreover, our cost is primarily of fixed nature, but our loan book is primarily floating. I think almost all the assets are almost floating, either reset in one year or linked to benchmark. So in the increasing scenario, we usually got benefited on the bottom line.
Sure, sir.
I don't think there would be any pressure on yield.
Sure, sir. Lastly, just wanted to understand that once you get merged, you will be about INR 12 lakh crore size balance sheet. Do you think that once we get merged, our pricing power among the small and mid-power companies shall improve than what is right now?
See, like I said, a loan book of INR 12 lakh crores with the dominance of being the single power financer, you must understand that power is a long-term game. Being a long-term game, those who are fly-by-night operators who are in for two or three years, who would just like to make a quick fast buck while the sector is doing well and move on, they will get attracted to maybe cheaper sources of finance because they are in trying to make a fast buck while the going is good. But those who are in for the long- term, they will come to the merged entity only because they realize that this entity is going to be there for the long- term. You forget the advantage that the merged entity has in terms of policy advocacy.
Policy advocacy is a unique skill set which the merged entity will have, and any serious player in the power market would not like to be dissociated from this unique USP which the entity will have. I honestly don't think we will see too many problems in the merged entity. I think I will just restrict myself with that right now.
Sure, sir. That was quite helpful and thanks for patiently answering. I wish you all the best for the guidances. Thanks a lot, sir.
Thank you. Ladies and gentlemen, anyone who wishes to ask a question may press star and one. Our next question comes from the line of Abhijit Tibrewal with Motilal Oswal Financial Services Limited. Please go ahead.
Yeah. Good afternoon, sir. Thank you for taking my question. Sir, whatever we have heard till now, the sense that I am able to make is that we are not really too much affected by maybe monsoons drought situation in India, and given how the weather has been in some parts of the country, maybe it is more hotter than what it typically is in October. We are already reading that the El Niño impact could stretch into next year, which would mean that what you also alluded to earlier, that power demand will remain strong. Like you mentioned to the previous participant, that last year you did record disbursements and it was only prepayments of almost INR 1 lakh crore, which pulled the growth down.
Sir, looking at the trajectory almost, I would say, seven months into the year, do you think this could also be another year where, compared to last year, we could have another year of record high disbursements?
I'm hopeful. We would love to see REC crossing INR 2.11.
Right. But, sir, which is where we are trying to understand that first quarter was weak in terms of growth. Second quarter, we have seen disbursements, loan growth pick up. Is it more like a quarterly phenomenon? Because when I look at the last two years, typically the fourth quarter has tended to be weak for you. So I'm just trying to understand this better, that this is more some quarterly strong growth that we have seen, which is more seasonal in nature, or do you think this momentum sustains in the third and fourth quarter as well?
The initial, the quarter one, the cycle, that is not the main reason. It's no such a specific reason. The major loan documented, the major projects, they are not able to materialize in terms of documentation. With the stiff peer competitions and all, the distribution, the disbursement has come down. The Discom's health has also improved, so disbursement under the Government supported RDSS has also improved, which the CapEx addition of the state distribution segment has slightly faced challenges. But overall in the financial year, in the H2, we are hoping to make up, because we have the sufficient committed balance with us in kitty, the sanctioned commitment. 40% of our disbursement, the loan assets are under the distribution. So that is going to help us, and in H2, we will be able to make up.
See, I'll just give you one important statistic. It will help you understand. The documented projects where disbursement is yet to start is close to INR 70,000 crore. So that is an immediate area where we see that over the next two quarters, this has to come through. So, that is one immediate signal which I can give you. Apart from this, we have a committed order book of close to INR 2.5 lakh crore. So, I don't see quarter three and quarter four being less than quarter one and quarter two.
What I am saying is very conservatively. In addition to what our Chairman spoke, I like to say that our disbursement is more than cumulative disbursement of all other Government NBFCs.
REC is a big company.
We are biggest financier for power sector.
I just give you a small statistic. We had collected inputs from the various state utilities. Of course, my data is restricted to state power utilities, not the private power utilities. But considering the fact that state power utilities account for almost 90%, 95%, I would say it is a rough, fair indicator of the market. As per data collected by our regional offices, in the last three years, close to INR 10 lakh crore of debt financing has gone to the state power utilities. Out of this, REC alone has lent INR 4.5 lakh crore to the state power utilities. So you are looking at 45% share. If you look at the power market for the last three years, REC has funded 45% of the power market. I am just leaving you with these statistics. You can draw your own conclusions.
Sure, sir. This is useful. Thanks for sharing all those statistics, all of you. The other thing I wanted to understand is, a couple of times in the call, you said that the yield should not fall too much, the margin should not fall too much from here. I think if I heard you right, please correct me, that margins may be guided for 3%-3.2%, which I think are historically low margins versus what REC used to operate at. I think I also heard earlier in the call where you said that whatever benefits we got on the borrowing side have been passed on to our projects. Sir, is there some more pass-through which is left, which we will see in the upcoming quarters?
Basically, all I'm trying to understand is, even if there is a better growth trajectory from here, which is a 10%-12% growth that may be guided for, will we also see a better earnings growth from here if margin continues to remain under pressure?
See, loan book growth is definitely there. I don't think we have too many worries on that. Let us also accept the fact that we are in a very different phase of competition where banks are flushed with liquidity, and the entire power sector is looking for very low rates. Obviously, the kind of investment that is required and the kind of investment that India would like to see people investing in power envisages a lower interest rate scenario. Combine this with increasing borrowing cost scenario, it would not be proper for me to misguide you and say that my NIMs will increase. Let us be very clear on that. There will be pressure on my NIMs, but you should take recourse to the fact that we are trying to ensure that our NIMs stay as high as possible.
I think even with the NIM of 3.22% as on date, if you look at peers, you will find that we stand head and shoulders above our peers, even as far as NIMs go. Please remember, we are maintaining these NIMs over a INR 6 lakh crore loan book. It is easy to maintain a NIM over a INR 20,000 crore loan book or a INR 1 lakh crore loan book or a INR 2 lakh crore loan book. I'm sure you will appreciate the difficulty of maintaining very high NIMs over a INR 6 lakh crore loan book.
Yes.
So let us be realistic. We will be very happy if we can maintain our NIMs at 3.22%.
Got it. That point is well taken. Sir, lastly, now that the swap ratio has already been announced, and I think one of the prerequisites for both the boards approving the merger was also that this remains a government company. In the last couple of months, any updates on how we are planning to keep this as a government company? Are there some discussions happening around equity infusion, or it will be more through preferential shares, what we keep hearing? Anything that you have picked up in the last couple of months?
As you are aware that both the boards have passed a merger resolution, and REC will get absorbed into PFC. This has received NOC from RBI as well as from the stock exchanges. The draft merger scheme is currently pending cabinet approval, so it would not be proper for me to say things which are directly linked to the cabinet approval. I think we will have to wait for the cabinet approval to get the final details. But yes, the precondition for the entire merger is that the merged entity will remain a government company, and I think that will be maintained.
Got it. Then, sir, when we say it will remain a government company, we are talking about the government maintaining more than 50% stake directly.
We are talking about management control, we are talking about voting rights, we are talking about everything.
Got it, sir. This is all that I had. Thank you so much, and I wish you and team REC the very best.
Thank you. Thank you so much.
Thank you. Ladies and gentlemen, anyone who wishes to ask a question may press star and one. Our next question come from the line of Shreya Shivani with Nomura. Please go ahead.
Yeah, thank you for the opportunity. Sir, I wanted to understand the new Government of India project that Union Cabinet approved, that INR 1.85 lakh crore project for strengthening the transmission sector. Can you help us understand what all financing opportunity can come our way? Will it get split across PFC, REC, the way it happened with the smart meter program, the states were split, et cetera? Will there be long-term loan kind of financing that you will be offering, or will the project involve short-term quick liquidity the way we gave out RBPF to the distribution segment? Any color on this new opportunity that is opening up could be useful. Thank you.
Okay. As of now, the Cabinet has given approval to this. However, the detailed guidelines are still being worked out by the Ministry of New and Renewable Energy. I would not be in a position to give you more clarification than what already exists in the public domain. I think you will have to wait for the guidelines to come. Of course, we are engaging with the Ministry of New and Renewable Energy to see how we can contribute. I am sure PFC also must be engaging with the Ministry of New and Renewable Energy to see how they can contribute. I think you will have to wait for some more time to see how things play out.
Right. Sir, and just to follow up on the distribution, earlier, the smart meter program and the tech upgradation that was happening over there, how much is effectively stuck in terms of, say, the smart meters are getting rejected by the common man on the ground and the project is moving? How much do you think we will be optimistically be able to complete in the next couple of years?
The smart meters program has. See, any new thing will take some time, and especially something which increases your electricity bill or which gives an impression that your electricity bill is increasing, will face some resistance. However, one must take into consideration that there are a lot of factors why bills are rising, and most of them are genuine reasons, and very few are to do with the fact that smart meters are defective or something like that. We have this provision of installing check meters. All states are being encouraged to increase the number of check meters that they are installing. We have seen that wherever check meters are being installed, the people at large are quite satisfied that, yes, these smart meters are showing the right picture, and their impressions were generally wrong. Having said that, there is still a long way to go.
There is a perception battle, which we are trying to address, and we will try to see that the perception battle is addressed in a more forthcoming manner.
Sir, can you remind us how much smart meter was allocated to us in terms of how much we were supposed to finance and how much has been done already for REC state?
You can just send a mail. I do not have that data with me right now.
Sure.
I will see that you get that data.
Sure, sir. Right. The other part of RDSS was the technology upgrades that we were doing for our Discom.
Sure.
How is that?
Yeah. Thanks for asking that question because, see, smart meters are just not to show this. The biggest advantage of smart meters is the data analytics which flow from the entire process. I am very happy to say that there has been a lot of progress on the data analytics front. Many Discoms have started using the data that is coming from the smart meters. While on one hand, the consumers are improving their electricity consumption habits, the Discoms are also breaking down this data and bringing down their AT&C losses very substantially. Theft has come down by a huge factor. All these factors have really helped in ensuring that the uptake of smart meters is there. Another thing I would like to talk about is the IES concept, which REC is promoting, the India Energy Stack.
I think once it has already seen some use case scenarios, I think the media has also seen the use case scenarios of a few things that we rolled out, and the positive outcomes of all these end-use cases is very encouraging. However, we have yet to go to scale. We are in the process of doing that. You must also appreciate that all this progress in IES has been made in as short a. So from being an abstract concept, it has actually got grounded in reality, and we have seen actual demonstrations of it in four or five utilities. All the utilities which have seen actual proof of concept are very happy with their results. So I think we have come a long way in IES in just a very short span of time.
I think the entire team deserves a lot of credit for that. The Discoms, the knowledge support partners, my colleagues at REC who have worked very hard, the developers who are working very closely with all these teams. Yes, we have seen a lot of improvement on the technological front.
Right. That is useful, sir. Thank you so much, and all the best.
Thank you. Our next question comes from the line of Parang Trivedi with India Capital. Please go ahead.
Thank you. My question is, with the rising disbursements on the thermal side, should we expect this to drive an improvement in lending yields and also for the overall margin? The second question is, given the longer tenure of these thermal projects compared to the renewable, should we expect lower prepayment rates over there?
Yeah. As I said, under the National Electricity Plan, the targeted capacity addition under capacity plan under the thermal generation is 274 GW from the baseline of 215 GW. Minimum capacity addition of 80 GW is in the plan, around 22 GW to 24 GW under various stages of construction. At the rate of INR 8.34 crore per megawatt, the fund requirement would be from REC side INR 1.8 lakh crore- INR 2.2 lakh crore. These thermal projects come with a gestation of five to seven years, so that the moratorium would be somewhere around five plus years and a long repayment period. 25 years is the economic life of the thermal projects. These are all the long-term projects. Basically, state sector and even the private sector, whoever is having the committed FSA would come to us, and we would be in a position to take up.
Sure.
In addition to what Prujit] spoke, I like to add that our major book is in generation thermal, which is about 55%. You have rightly pointed out that yield on generation assets are slightly higher, which ultimately contribute to our bottom line and top line. Recently, we also won another project of NTPC Meja, wherein we will disburse about INR 27,000 crore, probably with Power Finance Corporation. If we join Power Finance Corporation, that would be half of the business will be from our side. So we keep on trying to get generation projects.
Which ultimately contribute to our top and bottom line significantly. Thank you.
Thank you.
Okay. Of the INR 6.16 lakh crore, 24.7% is the generation. That is around INR 1.52 lakh crore. We are planning to take it up, say, around INR 2.5 lakh crore by 2032. That is there. We will be looking at the various emerging projects.
Thank you.
Thank you. Our next question comes from the line of Shreepal Doshi with Equirus Securities. Please go ahead.
Hi, sir. Thank you for the opportunity. My question was on the yield differential between thermal power projects and renewable power projects, and also in the infra segment, what is our yield for? Just wanted to understand the yield for these three segments.
As we have discussed right now, the yield on thermal powers are definitely slightly higher. But because of their long gestation period and other uncertainties, there must be some higher risk also. In case of renewable energy projects, the projects are being delivered within one year and their returns are more visible, can be forecasted more accurately. So their rates are slightly lower. But in case of IL projects, infrastructure and logistic projects, the rates are much higher than renewable energy projects. The rates of IL projects are definitely lower than thermal projects, but much higher than RE projects. So ultimately, on an average, there would be a mix of average of all the three segments, and which ultimately contribute to our top line.
What would be the differential, if you could give that number? Let's say, for example, I am not sure, thermal is 10%, so will renewable be at 8.5% or 9%? Just the differential, if you could give some color on that.
Actually, sharing specific figures with you may not be possible because it all depends on promoters, the kind of PPAs are there or not, kind of EPC are there. So there are various other factors also. As such, we cannot say that RE rate for a particular segment would be like this only. This all depends on multiple factors.
Got it. The second question was on the cumulative sanction pool that we have, because if we are aiming at a INR 2.1 lakh crore sort of a disbursements, just wanted to understand the cumulative sanction pool that we have as we speak today.
Last year, we had sanctioned INR 4.09 lakh crore and we have a committed scope of INR 2.56 lakh crore as of now. During the current financial year, we have done INR 1.12 lakh crore. Now we have a plan to go for another at least some INR 1.7 lakh crore-INR 2 lakh crore loan sanctions to happen. This is the highest among the peers, REC's performance in terms of loan sanctions. Now, the committed scope is INR 2.56, which still to be documented is around 65, which we will be pursuing with the borrowers. Now, till date, our disbursement in H1 is INR 90,000 crore. We are targeting another addition of, let us say, INR 1.2 lakh crore. So that we will be targeting INR 1.2 lakh crore-INR 1.3 lakh crore, which has to come up through basically under RE, the emerging IL projects, the Green Energy Corridor, which recently the guidelines are underway.
Because our transmission profile is as of now around just little over 7% of INR 45,000 crore. There also, we are targeting a major chunk. So, in the H2 of this year, under distribution and transmission and RE and the most competitive IL projects, we have a plan to go for a sanction of INR 1.8 and the balance commitment already sanctioned INR 1.2. Overall, we are in a comfortable position to achieve INR 2.1 lakh crore disbursement.
Got it. There is just one confusion that I had was on the loan growth guidance for FY 2027. While we are confident on the disbursement side, how should that reflect in the loan book growth for the year?
We are looking at a double-digit growth in loan book for this FY 2027. We would like to see ourselves touching around somewhere between 10%- 12%. We have already seen 6%.
Okay. Right. Then just the last question was on the credit cost side. Last few years, we've seen negative credit cost because of the NPA resolutions that happened, leading to provision reversals. However, now with no major project due for resolution, how do you see the credit cost moving from here? Because our Stage 1 requirement is almost 90, 95 basis points, and even Stage 2 is still 1.4, 1.5. Incrementally, what is the internal number that you are working with and something that you want to give it as a guidance?
So as India's new accounting standard are mandated to us that we should have a scientific ECL, expected credit loss policy for our company. So we have hired a professional consultant for this working. As of now, we are providing about 1% ECL on our additional loan book. During this quarter, we have disbursed more than I think about-
INR 26,000 crore.
Our loan book growth is about INR 26,000 crore. So almost INR 300 crore additional ECL has been provided. But I like to say that our loan book is majorly towards state sector. So whatever we are providing for ECL is practically reserve type of thing. Because you can see for the last 50 years, we don't see any like miss happening or like encounter any bad asset in state sector. So almost 80% of our ECL is reserve. So although we have to provide ECL as per norms because government norms don't distinguish government vis-a-vis private. But ultimately, you can appreciate that our ECL towards government assets are practically reserved. So we don't see something abnormal in ECL or credit cost. As far as provisioning is concerned, state 1% provisioning would happen in future also.
Got it. Got it, sir. Thank you so much, sir, for answering all my questions. Good luck for the next quarter.
Thank you.
Thank you. Next question comes from the line of Saket Yadav with India Capital. Please go ahead.
Hi, sir. Am I audible?
Yes, we can hear you.
Yeah. Sir, thanks for taking my question, and also thanks to the management for the clear guidance and focus on growth, which is great to see. Sir, in terms of the new areas that we are exploring, are we actively looking and funding, say, opportunities in the, especially in the battery storage space including pumped hydro? Are we exploring opportunities in areas such as data centers?
Yes, to all of the above.
Great. Just one more follow-up question, sir. On the Forex expenses. In the first half of the year, the Forex expenses were a bit on the higher side given the volatility and the currency. If the currency stabilizes a little bit, should we expect that the Forex charges should come off a bit in the second half?
As far as Forex losses are concerned, we have already taken a hit for Forex liability, which is due for redemption during the year. We don't see any new major hit on the Forex part. As far as currencies are concerned, if something goes very abnormal, that cannot be foreseen as of now. But ultimately, we have already enhanced our Forex hedging towards more than even INR 96 per dollar. Like INR 96 per dollar.
Understood, sir. Great. That's very helpful, sir. Thanks, sir.
Actually, Saket, you might be aware that Government of India and RBI has taken a lot of steps to stem this depreciation of the currency. As per the latest reports which are coming out from a lot of government institutions as well as international institutions, they don't see any major issues with the currency as of now. Obviously, a lot of geopolitical issues needs to be solved first. But the currency is also the pain for the country as a whole and a lot of positive steps have been taken by Government of India and RBI, and they continue to monitor that. We are pretty hopeful that whatever the pain was there, a lot of has already been taken care of.
Makes sense, sir. Thanks for that. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for the closing remarks. Thank you and over to you.
Thank you so much to all the participants who participated on this call and asked very relevant questions to the REC management team. We hope that we answered to the best of our capabilities and to your satisfaction. We look forward to your continued support to REC going forward as well. Thank you to the Equirus team for arranging this call. Thank you so much.
Thank you so much, sir. Ladies and gentlemen, on behalf of Equirus Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines.