Power Finance Corp: Alignment with RBI Norms Knocks Down FY17 Earnings

Jun 14, 2017

Power Finance Corporation (PFC) declared its results for the fourth quarter of financial year 2016-17 (4QFY17). The institution has reported a 40% YoY fall in net interest income and slipped into losses during the quarter.

Performance summary

• Loan sanctions grew by a robust 55% YoY in FY17. However, loan disbursements have been relatively slower - rising 35% YoY. Loan assets grew by a muted 3% YoY during the year due to prepayment of discom loans to the tune of Rs 284 billion under the UDAY scheme.
• Net interest income fell by 40% YoY in 4QFY16 due to 16.2% YoY decline in interest income during the quarter. For FY17, net interest income was down by 9% YoY.
• Net interest margins (NIMs) contracted sharply by 1.86% YoY to 4.43% in 4QFY17 on a steeper fall in yield on assets. For FY17, NIMs reduced by 0.7% YoY.
• The loans given to state or central sector public sector undertaking for generation projects were aligned with RBI prudential norms for restructuring with retrospective effect from 1st April 2015. These loans sanctioned before FY16 were earlier being classified based on Ministry of Power, Government of India approved restructuring norms. Due to the realignment, 590 billion of loan assets got downgraded out of which Rs 360 billion of loan assets were downgraded to restructured whereas Rs 233 billion of assets slipped to NPAs. Resultantly, the gross bad loans ratio has shot up to 12.5% as on 31^st March 2017.
• Provisions jumped up by over 650% in 4QFY17 and by 199% in FY17. PFC's net bad loans to advances ratio stood at 10.5% as on 31^st March 2017.
• This unprecedented surge in the provisioning for the downgraded state-run power generation projects pushed the NBFC into a loss of Rs 34.1 billion in 4QFY17 whereas for FY17, the net profit slumped by 65%. The reclassification of loan assets in line with RBI norms has pulled down profits by Rs 37.8 billion (Rs 34.3 billion of additional provision and Rs 5.3 billion interest income reversal). Excluding the RBI impact, PFC's profits would have been lower by only 6% in FY17.
• Capital adequacy ratio of PFC stood at a healthy 19.3% of which Tier I ratio is 16.2% as on 31^st March 2017.
  
  

  Standalone Financial Performance Snapshot

  Rs (m)	4QFY16	4QFY17	Change	FY16	FY17	Change
  Interest Income	66,450	55,680	-16.2%	272,590	264,910	-2.8%
  Interest expended	40,800	40,300	-1.2%	160,910	163,260	1.5%
  Net Interest Income	25,650	15,380	-40.0%	111,680	101,650	-9.0%
  Net interest margin	4.43%	2.57%		4.94%	4.28%
  Other Income	1,140	1,420	24.6%	1,350	3,260	141.5%
  Operating expense	370	530	43.2%	2,930	3,540	20.8%
  Provisions and contingencies	5,930	44,990	658.7%	17,060	50,930	198.5%
  Profit before tax	20,490	-28,720		93,040	50,440	-45.8%
  Extraordinary items	-790	80		-2,440	670
  Tax	7,110	5,470	-23.1%	29,470	29,834	1.2%
  Effective tax rate	34.7%			31.7%	59.1%
  Profit after tax/ (loss)	12,590	-34,110		61,130	21,276	-65.2%
  Net profit margin (%)	18.9%	-47.3%		22.4%	8.0%
  No. of shares (m)					2,640
  Book value per share (Rs)*					131.6
  P/BV (x)					1.0

  * (Book value as on 31^st Mar, 2017)