The loan book for Power Finance Corporation, particularly in renewable energy, is expected to continue growing at a strong pace due to short execution cycles, backed capex and purchase power agreements, with an anticipated addition of 300 GW of power generation capacity in India over the next six years.
"If we look at the standard loan basis, the sharpest jump has been seen in renewable energy-related dispersions, which are 23% year-on-year. Historically speaking, power financial conventional thermal power projects have caused NPA problems. According to a Bernstein report, defaults on renewable loans have increased. Chances are low because their execution cycle is short – just one to two years, compared to the execution cycle of thermal projects, which is around five years. According to the report, the company's capex is also backed, meaning major investment expenditure will be in the final stages of the project. The plans are also backed by a purchase power agreement, meaning they will have a ready market. The size of the opportunity is also evident from this data point. In the last six years, India has added 100 GW of power generation capacity, and it is anticipated that 300 GW will be added in the next six years. In other words, loan book growth is expected to continue in the future."
