Have a pipeline of ₹4 trillion in sanctioned loans, says Nabfid MD

To have a good balance sheet, we decided from the beginning to have a 50-50 mix: 50 per cent greenfield and 50 per cent operational assets. The 50 per cent greenfield component is because supporting new projects is our main mandate. This can go up gradually as we have better pipelines and a greater flow of projects, which is not happening as of now. Greenfield projects are typically “BBB” rated, while operational assets are rated anywhere from “A” to “AAA”. Even though higher-rated assets give lower returns, a good mix allows us to generate decent returns while keeping the balance sheet stable. Having 100 per cent greenfield exposure would mean too much risk on the balance sheet. Building the right kind of balance sheet is therefore very critical for Nabfid, particularly in the initial four to five years. That is why we took a very conscious call at the board level to have a mix of assets.

We have modelled our lending for long-term loans. Our average maturity profile is between 17 and 18 years, and we offer loans of up to 30 years, which commercial banks generally cannot do because of their asset-liability management mismatch. We also offer loan and bond structures, as well as fixed rate loans. However, very few borrowers have opted for fixed-rate loans because, over the last two to three years, the sentiment was that interest rates would move down. Of late, people have started enquiring about fixed-rate loans because infrastructure is more suitable for fixed-rate financing. We have also become one of the biggest syndicators in the system. We underwrite large projects and down-sell them to banks.

It is happening. Renewable energy, for instance, is largely driven by private capex, and we are seeing the same trend emerging across several other sectors. Data centres are seeing significant private capex, while there is also a lot of activity in ports. Similarly, a lot of new airports are coming up. There will be some government investment but it is more of a private play. Urban infrastructure is going to be the biggest piece, with significant private capex coming into areas such as solid waste management. The next piece will be tourism development, with 50 centres that the government is likely to develop. Private capex will again flow into this sector.

We see a good pipeline. In infrastructure, you do not really look at the balance sheet; you look at the pipeline. Our outstanding book may be around Rs 1.4 trillion as of today but our sanction book is Rs 4 trillion. Some projects will fall off because many are sanctioned by multiple banks and eventually go to the lender offering better terms. There is also some sharing, down-selling and prepayments. Even so, the Rs 4 trillion sanction book gives us visibility on the next one year’s disbursements. A large part of next year’s disbursements is already sanctioned and is at the documentation or disbursement stage. That is how we have built visibility for the next one to two years. In addition, our in-principle pipeline — where we indicate our initial interest and willingness to finance a project — is another Rs 1 trillion. The greenfield component is also higher in the future pipeline. On the sanction book, we are close to 45 per cent greenfield but the future pipeline is tending towards 55-60 per cent as more of the new projects coming up are greenfield. So, we are taking more greenfield risk now.

We have plans to borrow up to Rs 1 trillion this year. Of this, we are looking to raise around Rs 40,000 crore from overseas, largely because of the RBI’s concessional swap window. We have already raised $1 billion, mostly through external commercial borrowings. We also have a bond issuance planned this month. While we are going ahead with the overall plan, I do not want to commit to the exact size at this point, as it will depend on the market situation. Domestically, there may not be enough appetite for our bonds beyond Rs 30,000-40,000 crore. So, we necessarily need to raise funds internationally. We want to position ourselves as a frequent bond issuer — at least two every year — so that the market develops and pricing gets discovered. We are also looking at another product called PTC. On the liability side, there is a possibility of transferring these assets to the market. Similar to how we have PSL (priority sector lending) certificates in the priority sector loan market, there can be a transfer certificate for these assets. We can bundle our projects and raise liabilities by selling them in the market.

I don’t think so. We conduct sensitivity analysis, and a 2 per cent increase in interest rates should not have any serious impact on repayment. On liabilities, we cover our interest rate risk through interest rate derivatives. We are one of the biggest players in this space and have covered our risk well, so we do not see much difficulty.

Every year, my book should grow by Rs 1 trillion. Last year, we crossed Rs 1 trillion, and by this March, we are hopeful of reaching close to Rs 2 trillion. That is the plan based on the pipeline we have. Beyond that, it will be very difficult to handle. The capacity we have built allows us to handle an additional Rs 1 trillion every year. When we add new business, the existing book also has to be managed. Building a Rs 5 trillion book is our immediate target, by 2029-30.

The two important things for us are credit cost and operating cost. On the liability side, I do not have a choice — the market will determine the price at which I raise liabilities. Credit risk is something we need to factor in very carefully. The risk management and project assessment models we have built are world-class. Operating cost is equally important. Our cost-to-income ratio should be below 10 per cent, ideally around 5 per cent, because that is where our margin comes from. We have around 290 people handling a balance sheet of this size, and we do not plan to go beyond 300-350 people.