Power Finance Corporation Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Steady profit, clean-up continues: H1 standalone net profit rose to ₹8,960 crores, driven by 23% YoY NII growth, while gross NPA fell 84 bps to 1.87% after the KSK Mahanadi resolution.
• Growth guidance held at 10-11%: Management reiterated its FY26 loan book growth target, citing a large base and annual repayments of ₹85,000-90,000 crores that require ~₹2 lakh crores of disbursements just to hit that range.
• First cross-border deal signals ambition: PFC financed the ₹4,800 crore Khorlochhu Hydro project in Bhutan, its debut cross-border transaction, alongside new partnerships with JBIC and Export Finance Australia.
• Forex loss is large but reversible: A ~₹1,100 crore exchange loss hit H1 from an 8% Euro appreciation; management expects this to reverse gradually as long-dated Euro loans mature and the rupee strengthens.
• What to watch next quarter: Whether Kaleshwaram prepayments materialize and test the 10-11% growth floor, the final RBI risk-weight circular's impact on capital, and any provision write-backs from Sinnar and other advanced resolutions.

Loan Book Growth & the Repayment Wall

• The 10-11% math: To grow a ₹5,41,000 crore loan book by 10-11%, PFC must disburse around ₹2 lakh crores annually because routine repayments drain ₹85,000-90,000 crores each year. Management called this a "prudent" target and expects to sustain it "for years to come."
• Prepayments are the wildcard: Management is "trying our best to arrest the prepayments" but conceded terms must stay market-aligned; borrowers negotiate on rate and conditions just as PFC does with its own lenders. No specific contractual changes were confirmed.
• Kaleshwaram risk is contained, for now: No prepayment request has been received, normal repayments continue, and the exposure remains in Stage 2. Management stated flatly: "We do not see any risk in the repayment of the loan to PFC." Even if prepayments arrive in Q3 or Q4, the 10-11% growth target is expected to hold.
• Discom CAPEX offers a structural tailwind: The government's RDSS scheme is driving distribution network strengthening by states; earlier LIS and LPS schemes were one-time COVID bailouts, but going forward more CAPEX is expected in distribution. A committee of ministers is assessing discom viability but has not yet submitted its report.

Parminder Chopra: "We would like to be prudent in our approach in lending."

Asset Quality & Provisioning

• NPA trajectory improved sharply: Gross NPA fell from 2.71% in H1'25 to 1.87% in H1'26, driven by the KSK Mahanadi resolution in the prior financial year.
• Provisioning adequacy is conservative: PFC maintains ~1.01% provisioning on Stage-1 and Stage-2 assets on average. Under the new RBI ECL norms, any incremental provisioning required beyond the ECL model will be created through an impairment reserve without hitting the P&L.
• Incremental provisions are growth-linked: The ₹241 crores of incremental provisions this quarter stem from new disbursements of ~₹80,000 crores, provisioned at 0.40% ECL (1% on construction projects not yet implemented, since sanctions predate October 1). Management declined to forecast a run rate, calling it dependent on repayments, prepayments and incremental disbursements.
• Write-back potential is building: A resolution plan for Sinnar has been approved in NCLT, and a few other assets are at an advanced resolution stage. Management confirmed that if a cushion is received, "there will definitely be some reversal."

Parminder Chopra: "There are few assets as we said that for Sinnar also we have approved the resolution plan in NCLT. And there are few other assets on which the resolution is in advanced stage. If we get some cushion in that; then there will definitely be some reversal."

Margins, Spreads & the Forex Drag

• Core spreads held within guidance: Spread and NIM stood at 2.55% and 3.62% respectively, within the guided range, even as yield marginally dipped from 10.01% to 9.98% due to market forces and competition.
• Forex loss is a timing item, not a structural hit: The ~₹1,100 crore H1 exchange loss was driven by an ~8% Euro appreciation against the dollar. Because the underlying loans have maturities of 4-5 years and longer, the loss will reverse gradually quarter-to-quarter as the rupee strengthens versus the Euro. Management noted it is already seeing positive EUR/USD movement.
• Renewable mix shift is not a margin threat: Management pushed back on the idea that a growing renewable portfolio would compress spreads, arguing that transmission, distribution and conventional generation lending are already at very competitive rates, so the incremental renewable book is not a drag.
• Repo rate cuts could help temporarily: A reduction in the repo rate, if accompanied by improved liquidity, would lower PFC's cost of borrowing and temporarily improve spreads. There is no direct linkage, only an indirect pass-through via market benchmark rates.

Parminder Chopra: "I do not think increase in the renewable segment is going to impact our margin and spread adversely, because right now due to competitive reason, the transmission, distribution, lending also is at very competitive rate and so is the other conventional generation lending."

Strategic Expansion: Cross-Border & Partnerships

• Bhutan marks the first cross-border deal: PFC financed the 600 MW Khorlochhu Hydro project (₹4,800 crores), a 60:40 joint venture between Druk Green Power Corporation (Bhutan Government) and Tata Power. Management framed it as executing on "the vision to expand our footprint."
• Two new international partnerships were signed: A Japanese Yen 6,000 crore loan agreement with JBIC will fund a bamboo-based bio-ethanol project in Assam, and a USD 18 crore partnership with Export Finance Australia (ESA's first financing initiative in India) targets clean energy projects.
• Competition is acknowledged but not feared: Management named banks, IRFC, HUDCO, NABARD and NaBFID as competitors funding power sector assets, but argued "there is enough scope for business for each one of us to grow" and expects to maintain spreads and margins.

Parminder Chopra: "With the vision to expand our footprint, PFC entered into its first-ever cross-border financing deal in Bhutan Khorlochhu Hydro project."

Regulatory Landscape

• RBI project financing directions took effect October 1, 2025: The new norms apply only to project loan sanctions on or after that date; existing loans continue under earlier norms unless a fresh credit event or material change in terms occurs.
• Draft risk-weight circular could reshape capital allocation: Released October 24, 2025 and applicable from April 1, 2026 on the outstanding portfolio, the draft introduces a more granular approach that classifies projects as high-quality infrastructure assets eligible for lower risk weights, split into 50% and 75% slabs. PFC is still reviewing the draft to understand implications across portfolios.
• Renewable tender cancellations have no PFC impact: News of SECI, NTPC and NHPC cancelling allocations where PPAs could not be signed with discoms does not affect PFC, because a signed PPA is a pre-disbursement condition for all its funding. Management did not address whether future sanctions pipelines could be affected.

Capital Return & Valuation

• Interim dividend declared: The board declared ₹3.65 per share, taking the cumulative FY26 interim dividend to ₹7.35 per share. Management expects to maintain the payout, balancing investor returns with growth needs.
• Buyback is off the table: Asked directly about a buyback given cheap valuation (near book value) and the Maharatna regulation change, management stated: "Right now, there are no plans."
• Book value per share decline is mechanical, not fundamental: The reduction despite healthy EPS is entirely due to two bonus share issuances (1:1 and 4:1).
• Higher payout ratio was not entertained: An analyst asked whether lower growth (10-11% vs. the earlier 15-16%) and excess equity could support a higher dividend payout ratio. Management did not address excess equity directly, instead explaining the need to retain profits for capital adequacy and growth.

Guidance & Commitments

Key Metrics