Power Finance Corporation Limited 'CRISIL AAA/Stable' assigned to Long-Term Borrowing Programme; 'CRISIL A1+' assigned to Short Term Borrowing programme
Rating Action
^Borrowing programme for fiscal 2025 (refers to financial year, April 1 to March 31). The overall limit for the long-term borrowing programme and the short-term borrowing programme is Rs 1,30,000 crore. The long-term borrowing programme inter-alia includes tax-free bonds under Section 10 of the Income Tax Act. Within the borrowing programme of Rs 1,30,000 crore, total incremental long-term borrowing programme not to exceed Rs 1,05,000 crore (including perpetual non-convertible debentures upto Rs 500 Crore); total incremental short-term borrowing programme not to exceeed Rs 15,000 crore (including commercial paper upto Rs 5,000 Crore), at any point in time during fiscal 2025. The long term borrowing programme also includes Public Issue of Taxable Non-Convertible Debentures %Borrowing programme for fiscal 2024 (refers to financial year, April 1 to March 31). The overall limit for the long-term borrowing programme and the short-term borrowing programme is Rs 105,000 crore. The long-term borrowing programme inter-alia includes tax-free bonds under Section 10 of the Income Tax Act. Within the borrowing programme of Rs 1,05,000 crore, total incremental long-term borrowing programme not to exceed Rs 88,000 crore (including perpetual non-convertible debentures upto Rs 500 Crore); total incremental short-term borrowing programme not to exceeed Rs 7,000 crore (including commercial paper upto Rs 5,400 Crore), at any point in time during fiscal 2024. The long term borrowing programme also includes Public Issue of Taxable Non-Convertible Debentures *To be interchangeable with short term borrowing programme ^Short term borrowing programme for fiscal 2023 (refers to financial year, April 1 to March 31). ~Borrowing programme for previous fiscals #This amount excludes long-term borrowing programmes for fiscals 2021, 2022 and 2023, which are listed separately in the rows above. However, the amount includes Rs 5,000 crore of extra budgetary resources to be raised on behalf of the Ministry of Power. &Limit for working capital demand loan/overdraft facility/cash credit/line of credit/bank guarantee. Total working capital borrowing not to exceed board-approved limit of Rs 10,000 crore. However, quantum of sanctioned working capital facilities may be different from the Board-approved limit for outstanding working capital borrowing. Note: Institutional bonds, 54EC Capital Gain Tax Exemption Bonds, Tax free bonds, Zero coupon bonds, infrastructure bonds and term loans from banks/financial institution are part of long-term borrowing programme Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. 1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its 'CRISIL AAA/Stable' rating to the long term borrowing programme of Power Finance Corporation Limited (PFC) and its 'CRISIL A1+' rating to the short term borrowing programme of the company. CRISIL Ratings has also reaffirmed its ratings on the other debt instruments and bank facilities of PFC at 'CRISIL AAA/Stable/CRISIL A1+'
CRISIL Ratings has withdrawn its rating on subordinate debt of Rs 2000 crore and bonds of Rs 139.33 crore (See ‘Annexure: Details of rating withdrawn’ for details) as the outstanding against the same is nil and on receipt of confirmation from the debenture trustee. The withdrawal is in line with the policy of CRISIL Ratings.
The ratings continue to reflect the strategic importance of PFC to the GoI, given the key role the company plays in financing the Indian power sector, and majority ownership by the government. The ratings also factor in a strong market position and adequate capitalisation and resource profile. These strengths are partially offset by inherent vulnerability of the asset quality to the weak credit risk profiles of borrowers and significant sectoral and customer concentration in revenue.
The consolidated asset quality has shown sequential improvement led by steady resolution of delinquent private sector exposures and no slippages since last 8 quarters. On a consolidated basis, gross non-performing assets (NPAs) and net NPAs were lower at 3.13% and 0.86%, respectively, as on December 31, 2023, versus 3.91% and 1.15% on December 31, 2022. On a standalone basis, gross NPAs and net NPAs stood at 3.52% and 0.90%, respectively, as on December 31, 2023 (3.91% and 1.07% on March 31, 2023) as against 4.21% and 1.19% on December 31, 2022. Most of the NPA accounts are under a resolution process/or at advanced stages of resolution. Further, with most of the stress in the private sector recognised, there may not be further large private sector slippages in the near to medium term.
Government of India (GoI) had announced, Revamped Distribution Sector Scheme (RDSS) reforms-based and results-linked scheme with an outlay of 3.04 lakh crore over a period of five years, which would be available till fiscal 2026. REC Ltd (REC) and PFC have been appointed as nodal lending agencies for facilitating the implementation of this scheme. The scheme aims to improve operational efficiencies and financial sustainability of distribution companies (discoms) by providing reform-linked financial assistance for strengthening the supply. In fiscal 2022, GoI announced late payment surcharge (LPS) scheme to address dues of discoms to generation and transmission companies. PFC has extended financial assistance to various discoms under the rules, to clear their outstanding dues. PFC, along with REC shall act as the nodal agency to monitor implementation of these rules. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of PFC and its subsidiaries including REC. Furthermore, CRISIL Ratings factors in support from the majority owner, GoI, given the company’s key role in financing the Indian power sector.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The company plays a major role in implementing government policies, and is important for financing India's power sector, particularly government sector power utilities (87% of the consolidated loan book as on December 31, 2023). PFC is the nodal agency for the development of ultra-mega power projects and the integrated power development scheme, RDSS and LPS and is also the bid process coordinator for the Independent Transmission Projects scheme. It plays a developmental role in channelling finance to meet the power sector's large funding requirement, particularly of state power utilities (SPUs). PFC and REC is also the nodal agency for channeling finance towards the rural electrification programme under the Deendayal Upadhyaya Gram Jyoti Yojana (formerly known as Rajiv Gandhi Grameen Vidyutikaran Yojana) and Pradhan Mantri Sahaj Bijli Har Ghar Yojana, or Saubhagya scheme, and the National Electricity Fund Scheme. PFC and REC are the lending partners for the announced discom package. In fiscal 2022, GoI announced LPS to address dues of discoms to generation and transmission companies. PFC has extended financial assistance (disbursed Rs 78,994 crore as of December 31, 2023) to various discoms under the rules, to clear their outstanding dues. PFC shall also act as the nodal agency to monitor implementation of these rules.
GoI remains the majority shareholder, with a stake of 56% as on December 31, 2023. The government supports the company financially and operationally in various ways, including conferring special status to raise capital gains tax exemption bonds. GoI has strong strategic reasons and a moral obligation to support PFC, both on an ongoing basis and in the event of distress, given the latter's role in implementing the government's power sector policies and GoI's majority ownership in the company.
PFC plays an important role in the Indian power sector, not only by providing finance but also by implementing GoI's power sector policies. The company, at a consolidated level, is the largest lender to the power sector and plays a key role in channeling finance to SPUs. PFC has forayed into newer business opportunities, diversifying its portfolio from conventional energy sector, with more focus on renewable energy and infrastructure & logistic sector. The gross consolidated loan book grew by 19% year-on-year to Rs 9.54 lakh crore as on December 31, 2023, from Rs 8.05 lakh crore a year earlier (Rs 8.57 lakh crore as on March 31, 2023). The share of SPUs in the consolidated loan book stood at 87% as on December 31, 2023. Loans outstanding to SPUs on a consolidated basis stood at Rs 8.0 lakh crore as on this date.
As on December 31, 2023, on a standalone basis, Tier-I CAR and overall CAR stood at 24.28% and 26.86%, (21.61% and 24.37%, respectively, as on March 31, 2023). Capitalisation is expected to remain adequate over the medium term, supported by a demonstrated ability to raise capital through public issues. Networth to net NPA ratio on a standalone basis for PFC is 15.9 times as on December 31, 2023; 15.1 times as on March 31, 2023. Accretion to networth is supported by the ability to maintain stable interest spreads and a low operating expense ratio and provision costs. The standalone return on assets ratio was 3.1% and return on equity were 20.0% for the nine months of fiscal 2024 (2.7% and 18.3%, respectively, for corresponding period of previous fiscal). Ability to contain credit costs and hence improve profitability and capitalisation will remain a key monitorable.
Borrowing costs are competitive and the resource base, though wholesale, is diversified. Debt instruments have wide market acceptability, which is also reflective in its average cost of borrowing compared to peers (7.53% for nine months period ended December 31, 2023). The standalone resource profile as on December 31, 2023, comprises bonds (62%), term loans (19%), and other borrowings (1%). The company also has access to foreign currency borrowing, which comprised 18% of the total borrowing as on the same date. As per the board-approved policy for exchange rate risks, PFC has hedged 87% of its total foreign currency borrowing (92% hedged with residual maturity of up to five years) as on December 31, 2023. The company has also received government in 2017 approval to raise capital gain bonds under Section 54 EC, which further support the resource profile.
Weakness:
PFC's asset quality remains inherently vulnerable to the weak credit risk profiles of borrowers. The company caters only to the power sector, with 87% of its consolidated loan book as on December 31, 2023, to government sector power utilities (including generation, transmission, and discoms). SPUs, especially discoms, are an inherently weak asset class because of their poor financial risk profiles. Effective execution of various reform measures is extremely critical for SPUs to produce the desired positive impact, and broad-based political consensus is necessary to implement the much-needed tariff increases to ensure sustained improvement in their performance. NPAs and restructured assets from the SPUs book had risen sharply in fiscal 2017 owing to alignment with the restructuring norms of Reserve Bank of India. However, the downgraded accounts had been paying dues regularly, and a majority of them were upgraded in fiscal 2018. Furthermore, various dispensation schemes by the GOI such as RDSS and LPS have also helped support asset quality for these exposures. Accordingly, NPAs (stage III assets as per IND AS) remained nil from this portfolio (nil as on December 31, 2023)
PFC (consolidated) also has 13% exposure to private sector power players, which have remained vulnerable to asset quality risks historically due to issues around fuel availability, challenges with passing on fuel price increases and absence of long term power purchase agreements. However, due to steady progress in resolution of stressed assets, PFC’s asset quality has been on an improving trend with gross NPAs (stage III assets as per IND-AS) of 3.13% as on December 31, 2023 (3.91% as on December 31, 2022), all from its private sector book (on a consolidated basis). As on December 31, 2023, 19% of private sector loans have been recognised as stage III assets on which the company has a provision coverage of 74% on a consolidated basis. |
Liquidity: Superior Asset liability maturity (ALM) profile of PFC shows that liquidity position is superior. As of December 31, 2023, the structural liquidity of PFC had positive cumulative mismatches up to one year. The mismatches, if any, are managed mainly through unutilised bank lines. Additionally, debt repayments are well staggered across months, supporting liquidity.
As on February 29, 2024, the company (on a standalone basis) had liquidity cushion in form of Rs. 1390.89 crore of cash and equivalents and Rs 12,600 crore of unutilised cash credit lines against debt obligation of Rs 6166 crore over the three months till May 2024. Further, PFC has raised funds of around Rs 76,300 crore in the nine months period of fiscal 2024 through bonds, term loans from banks and capital market instruments.
ESG Profile CRISIL Ratings believes that PFC Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile. The ESG profile for financial sector entities typically factors in governance as a key differentiator. The sector has reasonable social impact because of its substantial employee and customer base, and it can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on environment. PFC has a continuous focus on strengthening various aspects of its ESG profile.
PFC Finance’s key ESG Highlights:
There is growing importance of ESG among investors and lenders. PFC commitment to ESG principles will play a key role in enhancing stakeholder confidence, given the sizable share of market borrowings in its overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable CRISIL Ratings believes GoI will retain its majority stake in PFC, which will continue to play a critical role in implementing government policies related to financing the Indian power sector over the medium term. The company is also likely to retain its strong position in the infrastructure-financing segment, while maintaining healthy capitalisation.
The rating on the perpetual bonds remains sensitive to the capital buffer maintained by PFC over regulatory capital requirements; rating transition on these instruments could potentially be sharper than that on other debt instruments and bank facilities. |
Rating Sensitivity factors Downward scenarios
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About the Company PFC was established in 1986 by GoI as an institution dedicated to funding and developing the power sector in India. Until 1996, it lent exclusively to public sector entities. Since then, it has expanded its customer profile to include private sector power utilities and projects. PFC aims to promote balanced and integrated development of the power sector by providing finance to low-cost, efficient, and reliable projects.
In March 2019, PFC completed the acquisition of GoI’s 52.6% stake in REC for Rs 14,500 crore. PFC and REC will remain strategically important to the government, which would provide them timely, need-based support. They will continue to play their respective policy roles and will remain the nodal agencies for implementing power sector policies. Further, they are expected to operate all functions independently as they do currently.
On a consolidated basis, PFC reported profit after tax (PAT) of Rs 21,179 crore and total income (net of interest) of Rs 30,608 crore in fiscal 2023 (Rs 18,768 crore and 31,636 crore, respectively in the previous fiscal). On a standalone basis, PFC reported PAT of Rs 11,605 crore and total income (net of interest) of Rs 16,383 crore in fiscal 2023 as against Rs 10,022 crore and Rs 15,920 crore, respectively in the previous fiscal. |
Key financials (PFC; standalone)
Key financial (PFC; consolidated)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
@Part of borrowing programme for fiscal 2021 ^^Not yet issued #Limit for working capital demand loan/overdraft facility/cash credit/line of credit/bank guarantee. Total working capital borrowing not to exceed board-approved limit of Rs 10,000 crore. However, quantum of sanctioned working capital facilities may be different from the Board-approved limit for outstanding working capital borrowing.
Annexure: Details of rating withdrawn
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Annexure – List of entities consolidated
*as at March 31, 2023 |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Annexure - Details of bank lenders & facilities*
|
Facility |
Amount (Rs crore) |
Name of lender |
Rating |
|
Short-term loan |
3275.5 |
HDFC Bank Limited |
CRISIL A1+ |
|
Short-term loan |
1500 |
Bank of Baroda |
CRISIL A1+ |
|
Working capital demand loan |
500 |
Indusind Bank |
CRISIL AAA/Stable |
|
Working capital demand loan |
250 |
Mizuho Bank |
CRISIL AAA/Stable |
|
Working capital demand loan |
350 |
IDFC First Bank Limited |
CRISIL AAA/Stable |
|
Working capital demand loan |
6000 |
ICICI Bank Limited |
CRISIL AAA/Stable |
|
Working capital demand loan |
1800 |
HDFC Bank Limited |
CRISIL AAA/Stable |
|
Working capital demand loan |
3000 |
State Bank of India |
CRISIL AAA/Stable |
|
Working capital demand loan |
300 |
YES Bank Limited |
CRISIL AAA/Stable |
|
Working capital demand loan |
300 |
RBL Bank Limited |
CRISIL AAA/Stable |
|
Working capital demand loan |
50 |
Citi Bank |
CRISIL AAA/Stable |
|
Foreign currency term loan# |
745.28 |
KFW |
CRISIL AAA/Stable |
|
Foreign currency term loan$ |
40.01 |
Asian Development Bank |
CRISIL AAA/Stable |
|
Foreign currency term loan# |
14.35 |
Credit National |
CRISIL AAA/Stable |
|
Foreign currency term loan$ |
7688.27 |
State Bank of India |
CRISIL AAA/Stable |
|
Foreign currency term loan$ |
914.28 |
State Bank of India |
CRISIL A1+ |
|
Foreign currency term loan# |
2975.03 |
State Bank of India |
CRISIL A1+ |
|
Foreign currency term loan& |
3109.45 |
State Bank of India |
CRISIL AAA/Stable |
|
Foreign currency term loan& |
235.27 |
State Bank of India (Shinsei) |
CRISIL AAA/Stable |
|
Foreign currency term loan$ |
5402.57 |
Bank of Baroda |
CRISIL AAA/Stable |
|
Foreign currency term loan& |
265.01 |
Bank of Tokyo-MUFG |
CRISIL AAA/Stable |
|
Foreign currency term loan& |
511.73 |
The Norinchukin Bank |
CRISIL AAA/Stable |
|
Foreign currency term loan$ |
1662.33 |
Export Import Bank of India |
CRISIL AAA/Stable |
|
Foreign currency term loan$ |
415.58 |
DBS Bank Limited |
CRISIL AAA/Stable |
|
Foreign currency term loan& |
291.51 |
Crédit Agricole Corporate and Investment Bank |
CRISIL AAA/Stable |
|
Foreign currency term loan# |
853.72 |
ICICI Bank Limited |
CRISIL A1+ |
|
Foreign currency term loan& |
1266.89 |
ICICI Bank Limited |
CRISIL A1+ |
|
Foreign currency term loan& |
663.96 |
MUFG Bank |
CRISIL AAA/Stable |
|
Foreign currency term loan& |
482.64 |
Mizuho Bank, Singapore |
CRISIL AAA/Stable |
|
Foreign currency term loan& |
868.30 |
Sumitomo Mitsui Banking Corporation |
CRISIL AAA/Stable |
|
Foreign currency term loan& |
652.90 |
Bank of China |
CRISIL AAA/Stable |
|
Foreign currency term loan& |
117.63 |
Gunma Bank Limited |
CRISIL AAA/Stable |
|
Foreign currency term loan& |
235.28 |
NTT TC Leasing Co. |
CRISIL AAA/Stable |
|
Foreign currency term loan& |
176.46 |
Chang Hwa Commercial Bank |
CRISIL AAA/Stable |
|
Foreign currency term loan& |
176.46 |
Taiwan Cooperative Bank |
CRISIL AAA/Stable |
|
Foreign currency term loan& |
179.73 |
Japan Bank for International Cooperation |
CRISIL AAA/Stable |
|
Foreign currency term loan$ |
831.16 |
IDBI Bank Limited |
CRISIL AAA/Stable |
|
Foreign currency term loan$ |
415.58 |
Axis Bank Limited |
CRISIL AAA/Stable |
|
Foreign currency term loan$ |
1662.33 |
The Hongkong and Shanghai Banking Corporation Limited |
CRISIL AAA/Stable |
|
Foreign currency term loan$ |
831.16 |
Punjab National Bank |
CRISIL AAA/Stable |
|
Foreign currency term loan$ |
831.16 |
Canara Bank |
CRISIL AAA/Stable |
|
Long-term loan |
7200 |
Canara Bank |
CRISIL AAA/Stable |
|
Long-term loan |
820.83 |
Oriental National bank |
CRISIL AAA/Stable |
|
Long-term loan |
4250 |
Bank of India |
CRISIL AAA/Stable |
|
Long-term loan |
100 |
Corporation Bank |
CRISIL AAA/Stable |
|
Long-term loan |
14855 |
State Bank of India |
CRISIL AAA/Stable |
|
Long-term loan |
5362.19 |
Union Bank of India |
CRISIL AAA/Stable |
|
Long-term loan |
11000 |
HDFC Bank Limited |
CRISIL AAA/Stable |
|
Long-term loan |
400 |
Andhra Bank Limited |
CRISIL AAA/Stable |
|
Long-term loan |
1433.02 |
Punjab National Bank |
CRISIL AAA/Stable |
|
Long-term loan |
2000 |
UCO bank |
CRISIL AAA/Stable |
|
Long-term loan |
1500 |
Indian Overseas Bank |
CRISIL AAA/Stable |
|
Long-term loan |
5000 |
Bank of Baroda |
CRISIL AAA/Stable |
|
Long-term loan |
100 |
KEB Hana Bank |
CRISIL AAA/Stable |
|
Long-term loan |
1000 |
IIFCL |
CRISIL AAA/Stable |
|
Long-term loan |
7500 |
National Small Savings Fund |
CRISIL AAA/Stable |
|
Long-term loan |
1000 |
Central Bank |
CRISIL AAA/Stable |
|
Long-term loan |
400 |
South Indian Bank |
CRISIL AAA/Stable |
|
Long-term loan |
3500 |
The National Bank for Financing Infrastructure and Development |
CRISIL AAA/Stable |
|
Long-term loan |
1000 |
Punjab & Sind Bank |
CRISIL AAA/Stable |
*Bank Lenders are part of Borrowing program of company.
$ Exchange rate as on December 31, 2023: 1 USD = INR 0.0120
# Exchange rate as on December 31, 2023: 1 EUR = INR 0.0109
& Exchange rate as on December 31, 2023: 1 JPY = INR 1.7001
Criteria Details
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