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IBC Act: Why Sunil Kanoria of Srei Infra feels interpretation is killing it


Srei Infra is booting its infra power through an upcoming IPO. It's just a question of when and not if, Vice-Chairman Sunil Kanoria tells ET Now.

Edited excerpts:

Let us start off by understanding what exactly is happening with the business currently. If you have to just give an update on the quarter gone by for Srei Infra, what exactly would be the key highlight, not only for the quarter but even for the entire fiscal 2018? What essentially drove the business?

If you look at Srei, we have two key businesses. One, equipment financing and two, infrastructure financing. We have faced a major challenge in the infrastructure space between 2011-12 and 2016. But in the equipment business, we have seen a very strong growth. Going forward, the business looks strong.

Last few years, this government has tried to revive stuck projects. We see a very strong growth in such areas as road and irrigation sectors, given the impetus from the government. That's driving the need for equipment. Growth is happening fairly strong in that space. The business has also turned around now. Recoveries have improved in the equipment financing business. We have grown over almost 50 per cent in our overall assets under management in equipment finance.

On the infra side, it will take some more time, to my mind. It's improving, we are seeing certain resolutions, certain projects starting again. But I think it will take another couple of more quarters to get there. Therefore, we are not looking to grow the book substantially there, but to churn our book and release capital from whatever investments we have done. That is what we have been looking at.

Last year, we were able to release some capital from our toll road portfolio that we listed. We released some from our treasury stocks. We are now looking at releasing capital by hoping to raise funds at the Srei Equipment level by listing the company because of strong growth. So, these are a few of the positive developments and going forward, we see a positive outlook for the sector.

Like you yourself mentioned, the equipment business seems to be picking up very well as opposed to the other part of the business. If you could just tell our viewers, what is the mix from these two broad segments you are catering to? Going forward, do you see the mix improving in favour of equipment financing?

See, basically both the companies are separate. Srei Equipment Finance is an independent business. It's a 100 per cent subsidiary of Srei Infra. Earlier, it was a 50:50 joint venture with BNP Paribas. About close to two years ago, it became a 100 per cent subsidiary and therefore, the assets under management there is about Rs 30,000-crore plus, which is growing fairly rapidly.

In the infrastructure financing business, my loan book is about Rs 14,000-15,000 crore. That is kind of stable for some time and the intent is to grow steadily and churn the book. So, this is how the mix is.

A large part about your business is really with regard to recoveries on loans that you put out. Give us a sense. I believe that there was a news report that you may write off about Rs 360 crore as two debtor companies entered into liquidation. What is the asset quality state today?

Well, those have already been written off two years back. Media many a time comes out with old stories in a new form. Those recoveries were already done and whatever amount had to be written off was already done two years ago. It was related to the Viom shares when we exited. So overall, in some we made money, in some we lost money. We had released a good amount of capital that time. This is an old story coming back again and again. That is it.

What is the state of affairs? Either way, we have been seeing NCLT processes gaining momentum on account of quicker bad loan resolution process. As an infrastructure financing company, what has been your approach towards dealing with bad loans?

Our approach is a little different than banks. India went through economy tsunami when everything went top. Projects got stuck up due to multiple reasons, whether it was Supreme Court pronouncements which hit the power sector or when all coal mines got cancelled. The telecom problem happened. Governance went for a swing.

So, the point is to see whether we can revive the project, work with either the existing sponsors or take away the project and revive it. We believe it's harder but much better to revive an asset than kill it.

Yes, if there is a certain thing which does not have value and cannot be revived, it is a different matter. But we believe that most of the assets can be revived. What is required is a good ecosystem to support it.

The IBC Act was a very good legislation. We had supported the government when this came up. However, I believe that in December, the amendment which came by way of 29A was uncalled for and not required because when you have created an Act, you have given authority and power to the COC and the process. Let the process come up. No COC, no IP is going to give the asset if a person or an existing sponsor is not paidable. The choice is there with the COC. You do not have to bring a law to debar that.

Businesses can go into problems. You need to work out a solution to it and if it cannot, then you sell it. Now, if you do not have faith in the existing sponsor, then you change it.

You have all the right to do it, but I think that can bring lots of damage, lots of controversies. We see that the process which was supposed to end in 6-9 months is getting longer through the court process because of interpretations. As soon as you create a process whereby you have created a scope of interpretations and not made it simple, you create more problems and that is what we are seeing today. It's unfortunate.

I would urge that good sense prevails in the overall ecosystem to see to it that this correction happens. Otherwise, the law was very good.

A quick word on your asset quality break-up between project finance and equipment financing businesses.

As I said, equipment financing business has been doing robust and is going well. My NPLs there are coming down. You have seen it has come down quarter to quarter. My cost of risk which had gone up over 3 per cent is now down to about 1.4-1.5 per cent.

We expect it to stabilise around 1.2-1.1 per cent over time. In infrastructure business, yes there are certain challenges, we are working to address it. I cannot reveal numbers and all. It is already there in what we have reflected and we are working hard to see that how we are able to resolve it over the couple of quarters by releasing certain capital. Certain processes may take a couple of more quarters to address it.

In another year or maybe, one-and-a-half years, we will be able to address the past issues. But parallelly, we expect the environment to get better in the infra space, which is steadily happening in a slow manner. This will again come up and help us grow again.

You mentioned raising funds via public listing for the equipment finance business. Any timeline for that IPO? When can we expect it?
Well, we are waiting for the final clearances and as soon as that happens, we would look forward to raising the capital as early as possible.

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