Hemant Kanoria, chairman & MD Srei Infrastructure Finance Ltd, speaks with TradeBriefs about the power sector, NPAs and more

In an interview with Debhota Mukherjee of TradeBriefs, Hemant Kanoria, chairman and managing director, Srei Infrastructure Finance Ltd, delves at length on wide ranging issues - from the state of affairs in the country's infrastructure space, power scenario, issues of NPAs and stressed assets and so on.
Excerpts:

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Q: What is the outlook for the company? Which sector is expected to do well?
Kanoria: Our focus continues to be on the equipment financing business, which has picked up quite well. In the last two to three years this business, which is under Srei Equipment Finance Limited, has been performing well. The bouquet of our products/services have also expanded from construction and mining equipment (CME) to medical equipment finance. We now finance all types of medical equipment – X-ray machines, MRI machines, CT scan machines, etc. We have also started financing IT equipment – both software and hardware. We are now financing and refinancing IT equipment for several domestic and multi-national organisations. These two new lines of business are doing very well for us along with the core business of CME financing. We are also financing agriculture equipment, and there is a gradual pick-up in that segment – owing to mechanization. The Government is also encouraging mechanization, and therefore there is hike in demand for agriculture equipment.

Q: Are these demands arising from the private sector?
Kanoria: Yes, it is primarily from the private sector. We are market leaders in the equipment financing space with a market share of over 33 per cent and there is robust growth in this space.

Q: What are your views on the power sector? When do you think power sector can actually turn around?
Kanoria:The power sector is still under stress. There are several problems that need to be addresses. The three main problem areas are distribution, availability of coal, and financial structuring. Until these problems are resolved, the Power sector will not revive.

Q:Many companies especially in the Steel sector have gone to NCLT. However, power sector hasn’t gone that way?
Kanoria: It is likely that many power companies may take that route in the next couple of months. However, I don’t see any recovery for them. In the steel sector the demand picked up, prices went up and thus the sector had chances of buyers. On the contrary in the power sector, nothing is being done to address the core issues therefore very few buyers will take interest. If they come in also, the offered value will be low and the bankers will be forced to not give a decision in the CoC. They will have a proclivity to push things towards liquidation.

Q: Do you see the same thing happening in other sectors, as well?
Kanoria: Yes, we have seen similar issue in many of the sectors. In many cases the bankers are playing safe and the company is being pushed into liquidation. This is very unhealthy for a company which is fully functional, even though there may be some operational hiccups. For instance, they may have to let go of workers, even the capacity which is there is reduced. If the supply gets constrained consumers will be affected and prices will go up, leading to rise in inflation. Therefore, by allowing companies to go into liquidation, the company faces damages while all stakeholders suffer, which can be avoided.

Q: Do you think the definition of NPA has to undergo a change?
Kanoria: Certainly, it has to change. The decision making process also has to be changed to avoid liquidation. Resolution plans need to be accepted. Otherwise it will cause irreparable damage to the economy.

Q: Where do you think lies the solution for NPAs and stressed assets?
Kanoria: The problem of NPA and stressed assets needs to be dealt with in a very different manner. You can’t have the same prescription for everyone, just like you cannot give same medicine for every illness. Every problem is different.
For NPAs and the consumer loans, the laws and policies need to be different. Even for productive loans, the approach and law has to be different.
For instance, a microwave as an asset is difficult to recover, but a plant needs to be dealt with differently. We need to keep in mind the asset which is valuable, there are boilers, turbines etc.which can run for 50 years. A microwave won’t run for the same period of time. Thus you cannot have the same prescription for the various categories of NPAs. The provisioning for industrial and consumer assets has to be different. This may not be easy but regulators will have to create separate prescriptions or allow the banks to take a decision, so that the banks can move according to industry history.
Even globally, the provisioning norms are based on bankers taking a call. They decide on the basis of industry norms, as well as the asset class. The bank with its track record creates a formula for the provisioning. The logic used by the banks is then checked by the regulators. The regulators have specific inspection rule. They assess whether the bank’s decision is logical or aggressive or conservative and they can accordingly take action against the bank or suggest reforms. However in India the regulations are uniform, and therefore changes need to be brought in.

Q: Do you think with the election coming up, will the projects get stalled? Or will they continue to pick up?
Kanoria: India at present is growing strong in the infrastructure space. This growth is driven by government expenditure. In the last 10-15 years the sector was driven by private investments, but now government expenditure will drive the sector which will have a multiplier effect. This will help in building up capital in the hands of people because a lot of EPC contracts will be given. In the US when the roads were built post the great depression era it was government expenditure that worked as a game changer. It will be similar for India. The good thing is that at present the expenditure is happening at both state government and the central government level. The local government is realizing the importance of investment in infrastructure because without it there will be no growth. For instance – Mumbai on its own as a city has given out contracts worth Rs 68,000 crs, Kolkata similarly is planning to give out contracts worth about Rs 18,000- 20,000 crs. Therefore, a huge opportunity lies there.
The equipment financing is bullish because of the increased activity in road, irrigation, mining, and construction equipment sector. Healthcare will always have a demand. Similarly for the IT industry – anyone who has to start a company will need IT equipment. Even in agriculture the demand is positively on the rise.

- Debhota Mukherjee, TradeBriefs -