In an interview to CNBC-TV18's Latha Venkatesh and Sonia Shenoy, Sancheti says if the asset continues to perform even after recasting and the value at risk is not impacted then it is a positive move for all the NBFCs
Below is the interview of Sanjeev Sancheti, Group CFO of SREI Infrastructure Finance with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.
Latha: What have you made of the rules, will it make life easier and NPLs lower at SREI?
A: The new regulation is a very detailed regulation. It is almost 40 pages document. So we are still trying to understand the implications, the fineprint of this document but by and large for most of the NBFCs' restructured assets that may become sub-standard, there is a relief noe. However, one thing is important that there are a lot of conditions on the basis of which you can do this. This is divided in two parts. The date of commercial operations when you shifted it - that is one part of the restructuring.
The second part is that all the projects which have already commenced operations for them there is a different benchmark. Having said that what it has also done is there is a separate provision on restructured assets which were standard at the time of restructuring and now they move from about 2.5 percent to about 5 percent over the next two-three years. However, this comes with a sunset clause as this is allowed only upto March 31, 2015. After that as far as RBI's recommendation both for the banks as well as NBFCs, which means there will be no further ones allowed.
However, the existing restructured assets would continue to fall into them and they will have to accelerate the provision to up to 5 percent provided they continue to perform on the restructured cash flow. Now what impact it can have on NBFCs? We will have to still work out that but I think it gives a window for the NBFCs to be able to restructure only those assets which make viability because it is not just about restructuring but post restructuring the value of asset should not diminish. So if the asset is continuing to be able to perform this restructuring and the value at risk is not impacted then I think this is a good move for most of the NBFCs.
Latha: Will NPLs be less for you and for other NBFCs now that you all can restructure?
A: It should be, especially in cases of asset finance companies where any restructuring would result in an NPL. It should help in reduction of NPL but for assets where the commercial production has already started, the classification would still remain sub-standard. However, the provisioning would be between 2.75 and 5 percent. So I am not sure whether the gross NPLs still continue to be impacted whereas the provisioning requirement may come down but this is something which I need to reconfirm because it is a very detailed document and we are still absorbing it.
However, for those that have not started commercial production, these are the windows to extend that commercial operation however the ground has to be legitimate, ground can be because of a court proceeding where it is allowed to extend beyond two years of existing two years is allowed or for results not executable to the promoter or to the project itself. So it is outside the control of the project, another partner is allowed and so, either 2+2 in court cases or 2+1 in cases where it is beyond the control of the company. So these are very specific reasons where you are allowed this. It is not that any asset you can start restructuring.
SREI Infra stock price
On January 24, 2014, at 14:10 hrs SREI Infrastructure Finance was quoting at Rs 22.65, down Rs 0.3, or 1.31 percent. The 52-week high of the share was Rs 38.75 and the 52-week low was Rs 17.45.
The company's trailing 12-month (TTM) EPS was at Rs 1.35 per share as per the quarter ended September 2013. The stock's price-to-earnings (P/E) ratio was 16.78. The latest book value of the company is Rs 52.62 per share. At current value, the price-to-book value of the company is 0.43.
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