Press Release Power Finance Corporation Limited

1 1 CARE Ratings Limited Press Release Power Finance Corporation Limited March 01, 2018 Ratings Facilities/Instruments Amount (Rs. crore) Rating1 Rating Action Long Term Borrowing Programme for FY-18 64,000 (enhanced from 31,000) CARE AAA/Stable [Triple A; Outlook: Stable] Reaffirmed Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers The rating assigned to the market borrowing programme of Power Finance Corporation Limited (PFC) factors in the majority ownership by the Government of India (GoI) and PFC s strategic importance to GoI in the development of Power infrastructure in India. The rating also draws comfort from PFC s diversified resource profile, stable profitability and healthy capitalization levels.

2 The rating also factors in the risk associated with moderation in PFC s asset quality with slippages in assets and high proportion of restructured accounts compared to net-worth, high exposure to weak state Power utilities and high sectoral as well as borrower concentration risk. Going forward, continued ownership by GoI and maintaining comfortable asset quality are the key rating sensitivities. Detailed description of the key rating drivers Key Ratings strengths Government ownership and status of nodal agency: PFC plays a pivotal role in financing Power projects from both the state and private sector, thereby being instrumental in strengthening the Power infrastructure of the country.

3 PFC has been designated as the nodal agency by the Ministry of Power (MoP), Government of India (GoI), for the development of Ultra Mega Power Projects (UMPPs) and operationalization of Restructured Accelerated Power Development and Reform Programme (R-APDRP; subsumed into Integrated Power Development Scheme (IPDS) in December 2014). The GoI is the major shareholder with stake in PFC (as on Dec 31, 2017). Adequate profitability: Over the years, PFC has achieved adequate profitability led by consistent growth in total income, improving interest spread and Net Interest Margins (NIM). PFC registered total income of , crore in FY17. The interest spread has reduced to in FY17 as compared with in FY16.

4 Also, the Net Interest Margins have reduced to in FY17 as compared with in FY16. PFC s total income and PAT during 9 MFY18 stood at ,361 cr and ,920 cr respectively. Diversified resource profile: PFC has a well-diversified resource profile, since it can mobilize funds at cost-effective rates from various sources, with borrowings as foreign currency loans, long-term bonds, bank loans, commercial paper, infrastructure bonds and tax-free bonds. The total borrowing as on Dec 31, 2017 was ,13,706 crore. Adequate capitalization: As on Dec 31, 2017, PFC had a Tier I CAR of and overall CAR of (being classified as a NBFC-SI-ND-IFC, it is required to maintain minimum Tier I of 10% and overall CAR of 15%).

5 Growth in credit portfolio with moderation in asset quality: The Gross loan portfolio of PFC had registered a growth of around in FY17 (increased from ,38, crore as on March 31, 2016 to ,45, crore as on March 31, 2017). The loan portfolio of the company stood at ,62,109 cr as on Dec 31, 2017. PFC s portfolio mainly includes loans to State Power utilities (SPUs). Since majority of the state Power utilities have weak financial profile, it exposes PFC to vulnerability in asset quality. The asset quality of PFC improved in Q3FY18 on account of up-gradation of two loans to state sector borrowers. GNPA and NNPA reported by Company as on Dec 31, 2017 stood at and respectively vis-a-vis Gross NPA of and Net NPA of as on March 31, 2017.

6 PFC lends exclusively to the Power sector, exposing it to the sectoral concentration risk. Furthermore, PFC s top 15 borrowers accounted for of the total loans as on Dec 31, 2017, thereby exposing the company to high customer concentration risk. 1 Complete definition of the ratings assigned are available at and other CARE publications 2 CARE Ratings Limited Press Release Analytical approach: Standalone Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE s Policy on Default Recognition CARE s methodology for Short-term Instruments Rating Methodology for Non-Banking Financial Companies Financial Ratios (Financial Sector) About the Company PFC was set up in the year 1986 as a Financial Institution (FI) dedicated to Power sector financing.

7 The Corporation was notified as a public financial institution in 1990 under the Companies Act, 1956. Until 1996, PFC lent exclusively to the public sector entities. Since 1996, it has expanded its customer profile to include private sector Power utilities and projects. In the year 2010, RBI had classified the company as Infrastructure Finance Company (NBFC-ND-IFC) . The product portfolio of PFC includes financial products and services like rupee term loan, short-term loan, equipment lease financing and transitional financing services, etc, for various Power projects in generation, transmission and distribution sector. PFC s clients mainly include central Power utilities, state Power utilities, private Power sector utilities (including independent Power producers), joint sector Power utilities and Power equipment manufacturers.

8 Brief Financials (Rs. crore) FY16 (A) FY17 (A) Total income 27,564 27,018 PAT 6,113 2,127 Interest coverage (times) Total Assets 2,48,024 2,66,554 Net NPA (%) ROTA (%) A: Audited Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at Investors/market intermediaries/regulators or others are welcome to write to for any clarifications. Analyst Contact: Name: Mr Gaurav Dixit Tel: 011 4533 3235 Mobile: +91 97170 70079 Email: **For detailed Rationale Report and subscription information, please contact us at About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India.

9 CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.

10 3 CARE Ratings Limited Press Release Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present.