In January 2022, PTC India Financial Services Ltd (PFS), the non-banking financial company subsidiary of PTC India Ltd, saw three of its independent directors resign citing concerns over lapses in governance and compliance. In November-December 2022, another set of independent directors resigned, and at least one of them expressed “serious corporate governance concerns”.
Pawan Singh, the managing director and chief executive officer of PFS, who has faced accusations of not following due processes in sanctioning loans, told Moneycontrol that the company does not fully agree with the findings of a forensic audit by CNK & Associates.
Singh said the company has complied with the Securities and Exchange Board of India requirements and wants to put the controversies that marred operations in the last year behind and step up loan sanctions and disbursals in 2023-24. Edited excerpts of interaction with Singh:
In January 2022, when three of the company’s independent directors resigned citing mismanagement and corporate governance issues, you denied all the allegations. One year has gone by and a forensic audit has been completed. What do you have to say about the allegations?
There was no corporate governance issue. The same group of IDs (independent directors) gave me a report that corporate governance is excellent in September (2021) and said that the information flow was excellent. In December, they wanted an extension for one of the IDs, who had completed more than 67 years of age and wrote to us asking for it. Then, in January, they suddenly said there are issues with corporate governance. Somebody wanted an extension but didn't get his extension so all of them joined together and resigned. There was a regulatory inspection of our company and that report was placed with the board directly, which became a sore point. People didn't want that report to be placed with the board directly. Apart from that, there were some trivial issues and factually incorrect points that were added to it. But the substantive point was that we brought the regulatory report before the board, which people did not want.
You and your promoter company have denied all the allegations made by the independent directors. Subsequently, when the forensic report came, you informed the exchanges that you were not satisfied with the findings. Has the board taken cognisance of the forensic report by CNK?
The board has taken cognisance of the report. The previous board was not able to finalise the accounts until the forensic report was completed. The regulators were maintaining the stance that there should not be an issue in finalising the accounts. The board would not have moved on without the forensic audit report; only after it was made available were we able to report financial results for the fourth quarter (FY22).
You have told the bourses that you do not agree with the findings of the report. Are there any parts of the report or suggestions that are being adapted by the company?
The main reason we did a forensic investigation was basically from the statutory point. When we did our accounts, the forensic report was already factored in. The forensic audit report has also suggested some procedural points here and there for improvement, which we have taken cognisance of.
We are taking that to the board shortly. There are certain procedural issues and if there is anything that can help improve or strengthen our procedures, we are happy to do that. So, fundamentally, as far as the account goes, we have taken cognisance of the findings and the accounts have been finalised.
But like the IDs, the forensic report came out with some wide statements, like in one place they have said there is a possible evergreening of loans. Now, they have not understood the word ‘evergreening’ and used it loosely. What can we do with such speculative suggestions. But there are a few suggestions on the process side, which are not conclusive. We have looked at them and we are trying to pick up from those pointers.
PFS told the exchanges that it has taken advice from a team of experts, lawyers and consultants on the forensic report and that they have communicated to the company that they believe that the report was not entirely correct in its findings. Were these parties given access to only the report or all the material that the investigation was based on?
Whatever was given to CNK was given to them; it was almost a parallel analysis. These are experts from E&Y, which has one of the best forensic teams. We also got an ex-Chief Justice of India looking at it.
You have denied all the allegations and even statements made by the report. But there are proxy shareholders’ advisers and shareholder activists who have been vocal with their concerns about the company, even advising shareholders to vote against resolutions in the annual general meeting, which included your reappointment…
Against the advisory, we have already given our clarification to each and every point. We have addressed it and put it in the public domain.
But there is a general sense of distrust that has been building over the last year. What is your strategy to win back the trust of investors and other stakeholders?
There’s a difference between the IDs and us; we are running the company and are responsible for every statement we make. We cannot be disrespectful to IDs and cannot be mudslinging. We voluntarily agreed to do a forensic investigation and did it through a third-party. We have taken the opinion of the former Chief Justice of India on some trivial points that have been pointed out in the report. We have a highly respected board in place, which has on record approved the replies that we have filed with the stock exchanges. We are continuing to do our business and the way we do it will speak of our corporate governance practices.
Is the matter closed with SEBI now?
We have complied with the SEBI requirements.
What about the Reserve Bank of India?
Normally, with the RBI, we have an ongoing relationship and that continues. I will not be speaking much about the regulators now. I can’t make statements on their behalf.
You are making plans for a recovery in the business. Is it safe to say that the company’s management has closed this chapter?
Yes, that is a more positive approach towards it.
You have been denying the allegations from the time they were made but the resignations and what happened after that disrupted business. You could not hold board meetings and take major decisions. Now that a full board is in place, what are the targets you have set for PFS?
We have a board in place now, and fortunately, it has fairly relevant members. …they bring value to the table and they have been in circulation till recently. This is a problem-solving board. They (IDs) have all done their due diligence before coming here because they would not put their reputations at stake. I think we are poised to do business not only in a normal way, but also will try to make up for the previous period. The fourth quarter (January-March) of FY22 was a washout. Normally, we do the maximum business in the fourth quarter but we lost that opportunity. With the new board, we have tried to ramp up in FY23. In the third quarter (FY23), with the new board, we have been able to sanction loans close to Rs 1,200 crore and disburse Rs 650 crore. In the fourth quarter, we will try to make up as much as possible and hope to do over Rs 2,000 crore of disbursement. So, for the year FY23, we would have sanctions at Rs 3,500-4,000 crore, and disbursals of a similar number.
How is 2023-34 looking? What kind of loan targets and projects would you be looking at?
For FY24, we aim to do much more than what we will do this year. We hope to sanction over Rs 6,000 crore in 2023-24. We will do a disbursement of over Rs 4,000 crore during the year. We have been trying to be a green sustainable infrastructure finance company and that is why we have reduced our thermal portfolio, which has come down to 6%. And for that 6%, too, we have a resolution plan that is almost at a final stage. By the fourth quarter of this year (FY23) or first quarter of the next year (FY24), we hope to become a zero thermal company. Renewable energy continues to be a key focus area, where we would like to continue to finance. Here, we are looking at the commercial and industrial (C&I) segment and not just state projects, so that we are able to diversify our risk. We are looking at e-mobility; we have already funded one project in Uttar Pradesh. We are first movers in this space and while many other lenders have also now joined the bandwagon, given India’s vision to be net zero emissions by 2030, there is ample room for the lenders to do financing. We will continue to look at road HAM (Hybrid Annuity Model) projects. We have some transmission line projects and we will also look at drinking water distribution projects. We will also look at smart city projects that are under the AMRUT (Atal Mission for Urban Rejuvenation and Urban Transformation) scheme.
Given the allegations made by IDs and their impact on the business, rating agency ICRA has downgraded your rating from ‘A1+’ to ‘A1’. Has the downgrade impacted your cost of funds?
Not as yet because our proportion of short-term borrowings is small and the ICRA downgrade was for our commercial papers — that is a short-term borrowing. For long-term borrowings, both ICRA and CRISIL continue to rate us ‘A+’ . They had kept us under watch with negative implications because optically, what was happening was the worst. We have done well in three quarters and the shares of the company have been moved out of the Z category of shares (this category includes companies that have failed to comply with listing requirements and/or have failed to resolve investor complaints, among other acts of non-compliance)
You spoke about asset resolution, what’s the status of that and how soon can you conclude it?
Our net NPAs (non-performing assets) today are around Rs 238 crore; it's a very low figure. And we have offers for resolution. In the current quarter and the year 2023-24 combined, I should be able to realise more than Rs 238 crore. I have already got an offer for Rs 20 crore and on top of that we have the Supreme Court judgment in our favour. I can’t exactly tell you how many days it will take to conclude but since we have an offer and our board is inclined to take a decision on this, we hope to do it in Q4FY23 or Q1FY24. We are likely to get close to Rs 90 crore for the project, which I don’t wish to name right now.
The resolution plan for another project, Meenakshi Energy, is with the NCLT (National Company Law Tribunal). But a few days ago, just before the bids were closed, the party bidding for it improved the offer to around Rs 1,400 crore. We hope to get to recoveries of over Rs 238 crore. We have been able to resolve all the thermal power legacy issues.
Interest rates have been on the rise. Do you expect fundraising for lenders such as PFS to become difficult and expensive?So far, we have been lucky because borrowing costs have been going up for everyone — if you look at my borrowing costs, they have not gone up the way they have gone up for others. So the principal reason for that has been that we resort to large-scale bank borrowing, which has not seen interest rates rising as much as the bond market or ECB. My borrowing cost has been almost flat. There has been some increase but we are trying to tackle it in several ways. Like on the asset side, we have repricing flexibility because we follow a PFS benchmark model. We are also trying to diversify our sources of borrowing by looking at international borrowings as we expect hedging costs to stabilise, going ahead.