Infrastructure finance company IDFC?s loan growth is expected to slow down this year, says Vikram Limaye, DMD. Limaye tells Aftab Ahmed it is possible that IDFC?s non-performing assets could go up given the difficult macro-environment. He believes the recently-formed Infrastructure debt funds (IDF) will take time to ramp up. Excerpts:

Loan growth in last 9-months has just been about 10%. How do you see it going forward?

The project pipeline is weak and a large portion of our growth in FY13 has come from refinancing operating assets rather than disbursements relating to underconstruction assets. I think FY14 loan growth will be 10-15%. We think the slowdown will continue for sometime and growth in investments will pick up with a lag. Many developers are stretched in terms of leverage and access to equity and that will be a bottleneck for promoters to commit to new projects. Equity valuations for infrastructure companies have corrected sharply. Raising money from public markets or private equity is difficult. It is critical for the government to resolve uncertainties and bring back confidence.

Your NPAs have been low around 0.2% levels. Is it sustainable, given the weak environment?

Our NPAs at 0.2% are very low, but we expect them to pick up and peak at 1-1.5% over the next 12 months. Our cumulative provisions as a percentage of loan assets is approximately 1.8% and we expect that to increase to over 2% in next 12 months. We are, therefore, building up cushion to take care of any asset quality issues that may arise.

What progress has the Infrastructure Debt Fund (IDF) made? Have you started seeing project inflows here?

Not really. The environment for infrastructure is challenging and therefore the risk appetite of investors and lenders is low. Also the return expectations are high given the nature of risk. The ramp up of infrastructure debt funds will be much slower than expected.

Have you shunned plans to buy 74% stake in Gurgaon-Delhi expressway project? What kind of hit do you see coming from that particular project?

We had said that we would evaluate the project and subject to diligence decide on taking over the asset. There are ongoing conversations and I will not be able to discuss more details with you at this point. The traffic volumes on the road are sufficient to service debt.

Do you see more lenders willing to take over projects?

I am not aware of many situations where lenders are stepping in and taking over projects. The reality in infrastructure is that many of the problems that we are facing today are self created. So, I hope these problems will get sorted out and once these problems are resolved, than fundamentally most of the projects are economically viable projects. For instance, gas-based projects are facing challenges because of insufficient supply of gas, when gas supply picks up these are viable projects.

In this difficult environment, how are you managing your cost of funds?

We have been borrowing in the domestic bond market in last 12-18 months rather than from banks. Banks are not able to lend below their base rates and as a AAA borrower, we were able to get better rates in the bond market by almost 50-75 basis points relative to bank base rates.

Where do you see growth coming from within the infrastructure sector?

In FY13, we have grown largely on refinancing operating projects. Going forward we expect activity in renewable energy, ports and hopefully roads. The refinancing opportunity will also depend on how our cost of funds plays out vis-a-vis the bank base rates.