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Aggregate state-level fiscal positions appear to have improved in FY01-11. Even states with
financially weak SEBs have improved their debt-to-state GDP ratios. This provides comfort on the
ability of states to come to the rescue, if needed. PFC has the majority of its exposure to state
and central govt projects. Buy.
State finances have improved over the past 10 years
According to RBI’s FY11 annual report, the aggregate gross fiscal deficit of state governments in
India has improved from about 4.2% of GDP in FY01 to 2.64% in FY11 and is expected to fall to
2.2% in FY12. The aggregate state-level revenue deficit has concurrently improved from 2.63% in
FY01 to 0.3% in FY11 and is expected to be -0.2% in FY12F (see Table 1 and Chart 1 for
aggregate data, Table 2 and Chart 3 for data by state).
State debt to state GDP has also improved
The aggregate state debt to aggregate gross state domestic product (GSDP) has fallen from an
average of 28.9% in FY05-08 to 23.1% in FY11 (see Table 3 and Chart 4 for data by state). The
improvement in state finances over the past 10 years somewhat increases our confidence in the
ability of state governments to provide potential support to financially weak SEBs, if the need
arises. Note the annual SEB losses, at about Rs700bn, currently work out to about 1% of GDP
(see Chart 2). Further, we observe that PFC and Rural Electrification Corporation (RECL IN, not
rated) were not included in the one-time settlement scheme for outstanding SEB dues in 2001, as
the dues to these organisations by the SEB were in the nature of commercial loans.
PFC has about 84% exposure to state and central power utilities
As at June 2011, of the PFC’s total loan book, loans to state government projects/utilities
constituted 64%, 20% were loans towards central sector projects and about 8% each were to joint
and private sector projects. In addition, generation constituted 84% of the loan book, transmission
sector 8% and distribution another 5% (see Charts 5 and 6). As of FY10, the overall recovery rate
(principal, interest etc.) has been consistently maintained at 96-99% for the last ten years.
Impact of recommendation by NBFC working group; reiterate Buy
If the recommendations from RBI’s non-banking finance companies (NBFC) working group are
implemented, we estimate the impact of the 40bp standard provision requirement would be about
2.2% of FY12F net worth and about 2-3% on recurring earnings (see our report titled RBI: NBFC
Working Group recos, 29 August 2011). Our estimates do not factor in the above charge.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Aggregate state-level fiscal positions appear to have improved in FY01-11. Even states with
financially weak SEBs have improved their debt-to-state GDP ratios. This provides comfort on the
ability of states to come to the rescue, if needed. PFC has the majority of its exposure to state
and central govt projects. Buy.
State finances have improved over the past 10 years
According to RBI’s FY11 annual report, the aggregate gross fiscal deficit of state governments in
India has improved from about 4.2% of GDP in FY01 to 2.64% in FY11 and is expected to fall to
2.2% in FY12. The aggregate state-level revenue deficit has concurrently improved from 2.63% in
FY01 to 0.3% in FY11 and is expected to be -0.2% in FY12F (see Table 1 and Chart 1 for
aggregate data, Table 2 and Chart 3 for data by state).
State debt to state GDP has also improved
The aggregate state debt to aggregate gross state domestic product (GSDP) has fallen from an
average of 28.9% in FY05-08 to 23.1% in FY11 (see Table 3 and Chart 4 for data by state). The
improvement in state finances over the past 10 years somewhat increases our confidence in the
ability of state governments to provide potential support to financially weak SEBs, if the need
arises. Note the annual SEB losses, at about Rs700bn, currently work out to about 1% of GDP
(see Chart 2). Further, we observe that PFC and Rural Electrification Corporation (RECL IN, not
rated) were not included in the one-time settlement scheme for outstanding SEB dues in 2001, as
the dues to these organisations by the SEB were in the nature of commercial loans.
PFC has about 84% exposure to state and central power utilities
As at June 2011, of the PFC’s total loan book, loans to state government projects/utilities
constituted 64%, 20% were loans towards central sector projects and about 8% each were to joint
and private sector projects. In addition, generation constituted 84% of the loan book, transmission
sector 8% and distribution another 5% (see Charts 5 and 6). As of FY10, the overall recovery rate
(principal, interest etc.) has been consistently maintained at 96-99% for the last ten years.
Impact of recommendation by NBFC working group; reiterate Buy
If the recommendations from RBI’s non-banking finance companies (NBFC) working group are
implemented, we estimate the impact of the 40bp standard provision requirement would be about
2.2% of FY12F net worth and about 2-3% on recurring earnings (see our report titled RBI: NBFC
Working Group recos, 29 August 2011). Our estimates do not factor in the above charge.
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