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On the capital allocation point, the Banking/NBFC business is by design a highly leveraged business and if they do not use leverage there is no business model. The CRAR for PFC ranges between 17 & 18% and is broadly in line – may note the following:
- CRAR Norm (NBFCs) – 15%
- CRAR of NBFCs (March 2020) – 19.6%
- In the Q4FY20 concall, PFC mentioned that there has been a reduction of 40 bps in CRAR because of regulatory change: The key reason for depressed CRAR is the recent change introduced by RBI on 13th March, 2020, for exclusion of any net unrealized gains on fair valuation of financial instruments from calculation of own funds under CRAR, whereas all such net losses should be considered. For FY 19-20 after including net fair valuation gains, the CRAR would have been up by around 40 bps.
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Restructuring is not available to financial sector entities, central and state government as well as local bodies. So, if there are problems, they will come to the surface earlier. The long term solution is privatization of DISCOMs and is the unsolved portion in Power sector. Hope some worthwhile reforms are pushed by state governments at this time of adversity.
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Forex Loss – my understanding is that it is more of an Accounting loss and not cash loss. PFC has 74% of the FC loan hedged with 5 years residual maturity.
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