“NBFCs continue to have a credit demand but we are cautious and selective,” Ashwini Kumar Tewari, Managing Director (Corporate Banking and Subsidiaries), SBI, told ET in an interview. “There’s too much interconnectedness, with one NBFC lending to the other, then to microfinance institutions (MFI) so there’s no clarity on who you are finally lending to.”
NBFC lending is then growing slowly at SBI, which has chosen to lend only to “better quality” NBFCs, he said. “On the ground, we are seeing some delinquencies in MFIs. Sometimes, it is a leading indicator, so you have to be cautious.”
On October 17, the Reserve Bank of India barred Flipkart founder Sachin Bansal’s Navi Finserv and three other NBFCs from sanctioning and disbursing loans on grounds of excessive pricing and evergreening of loans.
SBI’s portfolio, which has a corporate loan book of Rs 11 lakh crore, is focusing on renewables and real estate. The loan book is growing at 15-16% this year, compared to 18% last year. Lending to renewables is also growing at 15-16%.
Outstanding loans to the power sector stood at about Rs 2,03,000 crore at the end of June, according to SBI analyst presentation, which didn’t provide split for renewables. It grew 9.5% year-on-year during the quarter and accounted for 6.2% of total domestic advances.The real estate sector is doing well as “all the major developers are coming up with good projects,” Tewari said, adding that SBI is only lending to “good developers” especially in lease rental discounting (LRD) on office space. Cement and steel sectors are buzzing with activity but not borrowing much from banks, he said.SBI is focusing on SME rooftop solar and “large” solar panel makers. “Large-scale grid-based solar is getting difficult because land is not available. What we are looking at is SMEs’ rooftops, along with individual rooftops but this is much smaller than the grid scale,” he said.
Several domestic companies have got into solar module and cell manufacturing. “We will fund larger companies in this field. For smaller players, it’s still early days,” he said. SBI has recently supported one aluminium-air battery project but it’s “early days” for batteries, Tewari said.
“Repayment is faster in renewables. Solar projects get executed in a year. The moment they go live, they refinance it from the bond market or PE funds,” he said. A lot of money is finding its way into the Indian renewable energy sector but the share of debt in it is “not large,” he said.
Thermal power is also seeing some pickup and SBI is funding some of the major thermal generation projects, he said. “All the power plant accounts that had gone bad earlier are being sold at good prices due to rising power demand,” he said, referring to multiple thermal projects that went to bankruptcy courts in the last decade.
“Everyone had underestimated thermal or thought that solar can fully replace it. Being intermittent, solar requires a storage solution,” he said, adding that SBI was offering to fund emission-reduction technologies at thermal projects keeping in view India’s energy security requirements.
For renewable projects, it’s important to have power purchase agreements (PPAs) and optimal fund allocation for maintenance of plants, Tewari said, adding that EPC players would be better placed if they developed backward linkages with equipment suppliers. “Solar energy generation has become commoditized,” said Tewari, referring to the declining project risks.
Inexperienced companies getting into renewables, rapid evolution in technologies and poor health of power distribution companies do present some risks to the lenders, he added. “When we started, solar plant load factor (PLF) was 20% or lower and now it’s going to 30%. The newer ones are more efficient. So, will the utility buy from the less efficient ones?” he asked, explaining the emerging risks in the green sector.