Banks, net interest, income, Q4, Analysts, news

Banks, net interest, income, Q4, Analysts, news

Banks’ net interest income to rise over 20% y-o-y in Q4: Analysts

Receding pressure from slippages is likely to result in an improvement in banks’ earnings in the quarter ended March, with net interest income (NII) rising by over 20% year-on-year (y-o-y), analysts said. In a recent note, analysts at Kotak Institutional Equities (KIE) wrote that they expect banks to show stable operating performance as recapitalisation in public-sector banks (PSBs) may result in them lowering their net non-performing asset (NPA) ratios by making higher provisions. “Loan growth has been stable at 14-15% for the quarter with better negligible pricing pressure resulting in NII growth of 21%,” the note said.

Even as banks see a rise in core income and a drop in fresh bad loans, they may see a fall in non-interest income, with treasury income falling sharply on a sequential basis. At the same time, credit costs are likely to remain high as resolutions through the Insolvency and Bankruptcy Code (IBC) route lose pace. Resolution continues to evade some large accounts from the Reserve Bank of India’s (RBI) first list of NPAs — Essar Steel, Bhushan Power and Steel and Alok Industries — which were expected to have been fully resolved by March 2019. Banks did not make any large recoveries through the IBC process in Q4FY19.

Banks with a large presence in corporate lending are set to benefit the most from a reduction in fresh slippages and a gradual drop in provisions, according to a Motilal Oswal Securities report. “Revival in credit growth, along with improved pricing power, will help drive faster NII growth, while moderation in NPA formation will facilitate a gradual decline in provisioning expenses,” the report noted. KIE, too, has a positive view on corporate-focused banks, especially State Bank of India (SBI) and ICICI Bank.

While loan growth is expected to remain steady at around 15%, it will be driven largely by retail loans, experts say. “Corporate loan growth, though muted, continues to crawl upwards (up 5% y-o-y in February 2019),” KIE analysts wrote, adding, “There, however, exists diversity in corporate lending across sectors, with some segments like renewable energy attracting strong credit growth compared to others like iron and steel.”

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India, states, solar policies, renewable energy, Karnataka, Uttar Pradesh, Haryana, solar, wind units, Electricity Act 2003

India, states, solar policies, renewable energy, Karnataka, Uttar Pradesh, Haryana, solar, wind units, Electricity Act 2003

Open access gets leg-up from states’ solar policies

Open access by industrial and other bulk consumers of electricity has picked up in the current year, helped by renewable energy policies of several states such as Karnataka, Uttar Pradesh and Haryana which have removed extra costs (surcharges) imposed on such transactions from solar and wind units. In the April-February period this year, open access transactions touched an all-time high of 65 billion units (bu) and the year may have ended with such deals of over 70 bu, up a third over FY18 (see chart).

Open access is the non-discriminatory use of transmission and distribution infrastructure of the licensees by consumers with demand greater than or equal to 1 MW for procuring electricity from the source of their choice. Put simply, it allows a consumer to circumvent the discom and buy power directly from the power plant of his choice via bilateral deals or spot market purchases on the exchanges.

While open access has been legal under Electricity Act 2003, spot purchases commenced only in 2008 after the Central Electricity Regulatory Commission came out the necessary guidelines. Open access hasn’t thriven as envisaged by policymakers owing to various imposts on such purchases by discoms, inflating the cost of electricity tied up via this route.

“The jump in open access volumes comes from completed projects initiated under state renewable energy policies of earlier years, which had generous terms for open access,” PwC partner Kameswara Rao said.

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In order to achieve the target of having 175 GW of renewable energy capacity by 2022, many states such as Karnataka, UP and Haryana have issued attractive renewable energy policies, providing heavy discounts on open access transactions from renewable energy capacities.

According to Icra vice-president Girishkumar Kadam, about 1,200 MW of solar capacity has come up in Karnataka in FY18 itself, thanks to the favourable policy. But Kadam pointed out, only about 2,500 MW of solar capacity is available for open access, limiting the scope of rise in such power transactions in the future.

Similar sentiment was echoed by Rao, who said “these policies have certain sunset clauses, and with discoms naturally reluctant to lose high-paying consumers, the future growth of open access could be weak”. In a discussion paper on open access released by the power ministry earlier, it suggested the states to follow a uniform formula to fix the additional surcharge for such transactions.  However, the states did not really pay any heed to such proposals.

The process to procure power through open access remains fraught with numerous roadblocks posed by state-owned power distribution companies (discoms) who don’t want to lose their high-paying commercial and industrial consumers. Apart from the cumbersome approval process, state electricity regulators levy substantial open access charges—ranging between Rs 1 – Rs 2.5/unit—which makes it unviable for large consumers to buy electricity from spot markets through open access.

Apart from that, a number of major states such as Gujarat, Rajasthan, Andhra Pradesh, Maharashtra and Tamil Nadu are levying an additional surcharge, which increases the power tariffs through open access by another Rs 0.5 – Rs 1.5/unit.

In fact, the Electricity Act, 2003 says that surcharge and cross subsidies would have to be progressively reduced to encourage buyers (with more than 1 MW consumption) to purchase power from the electricity market instead of the discoms through open access. Commercial and industrial consumers anyway pay hefty power tariffs as high as Rs 8-12/unit, because of ‘cross-subsidisation’, which is a mechanism where the price of electricity for the aforementioned segments are kept higher in order to compensate for lower agricultural power tariffs. The average cost of power supply at the national level was Rs 5.58/unit in FY18.

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GAIL, financial bids, renewable energy, IL&FS, industry, news

GAIL, financial bids, renewable energy, IL&FS, industry, news

GAIL submits financial bids for renewable energy assets of IL&FS

Gas utility GAIL (India) is one of the few firms which has submitted financial bids for the renewable (wind and solar) energy portfolio of the debt-laden Infrastructure Leasing and Financial Services (IL&FS), according to sources. While around 24 firms had put in expressions of interest (EoIs), only half of them undertook due diligence for submitting financial bids. “This will be the first vertical among many of IL&FS that will come up for resolution. The financial bids are likely to be opened shortly,” sources said.

Tata Power, Adani Power and JSW Energy were among the other firms to submit EoIs. FE could not ascertain the name of the other firms which submitted financial bids. The last date for submission of EoIs was December 10, 2018. While an email sent to GAIL remained unanswered, an IL&FS spokesperson said, “The bids for renewable assets have been received and are being processed.”

GAIL aims to increase its installed capacity of 128 MW of wind power through mergers and acquisitions, and also by bidding for commercially-viable tariff-based and viability gap funding-based green power projects. The company recently also signed a memorandum of understanding with BHEL to develop solar assets. Renewable portfolio divestment is part of IL&FS’ asset monetisation strategy to pare `94,000-crore debt. The renewable energy assets include operational wind projects with cumulative capacity of 873.5 MW and under-construction wind projects of 104 MW. The portfolio also includes asset management services for operating wind projects and business division conducting project development and implementation of wind projects.

In addition, IL&FS’ renewable assets also include businesses engaged in development and implementation of solar power projects for corporate customers with under-construction projects of around 300 MW. IL&FS’ energy assets, including thermal, have been valued at `8,000 crore. The renewable portfolio is likely to fetch around `6,000 crore, sources said. The group’s new board of directors which took over in October has decided to sell assets under various verticals, including roads, education, renewable energy and broking. LIC is the single largest shareholder in IL&FS with over 25% stake and Orix Corp owns a little over 23%.

IL&FS Employees Welfare Trust holds 12% in the company. The Abu Dhabi Investment Authority, HDFC and Central Bank of India hold 12.56%, 9.02% and 7.67%, respectively, in the cash-strapped company. The country’s largest lender, SBI, has around 7% stake in the company.

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Read more: GAIL submits financial bids for renewable energy...

Roja and 600 MW Butibori units, Jindal Power’s 1,000 MW Tamnar, Essar Power’s 1,200 MW Salaya, KSK Energy’s 1,200 MW Mahanadi, Adani Power’s 1,200 MW Udupi and Coastal Energen’s 1,200 MW Mutiara unit.

Electricity produced by thermal power plants in March 2019 recorded a drop of 0.9% year-on-year (y-o-y), making it the third straight month when power electricity generated from these sources was lower than the corresponding period last year. However, thanks to the surge in power demand recorded around October, overall thermal generation in FY19 grew by 3.4% to 1,072 billion units. Utilisation levels of thermal generating stations in FY19 showed a tepid rise with plant load factor (PLF) rising just by 1.2 percentage points to 61%.

As reported by FE earlier, peak power demand of the country breached the 180 GW mark in October— the first time in history—when electricity consumed in the country was 14% higher than the corresponding month last year.

PLF of private plants remained muted at 54.9% in FY19, keeping their debt-servicing capabilities suppressed. The major units where PLFs fell the most (y-o-y) are Reliance Power’s 1,200 MW

Roja and 600 MW Butibori units, Jindal Power’s 1,000 MW Tamnar, Essar Power’s 1,200 MW Salaya, KSK Energy’s 1,200 MW Mahanadi, Adani Power’s 1,200 MW Udupi and Coastal Energen’s 1,200 MW Mutiara unit.

Major private generating stations where PLFs have increased are Adani Power’s 3,300 MW Tiroda, GMR Energy’s 1,370 MW Raikheda, JSW Energy’s 1,200 MW Ratnagiri, Sembcorp’s 1,320 MW Gayatri and CESC’s 600 MW Dhariwal plant.

Thermal plants owned by the states saw their PLF levels rise by 2.6 percentage points y-o-y to 57.7% in the same period. Central government-owned plants’ average PLF dropped 1.2 percentage points to 72.6%.

Generation data from renewable energy, which has been recently clocking impressive growth levels, is not available yet.

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Read more: Thermal power generation grows 3.4 per cent in...

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