Tata Capital, the funding arm of Tata Sons, has announced a joint venture with World Bank arm International Finance Corporation to tap the unexplored potential in the Indian climate change space. The move, apart from generating a mammoth $750-million business for the company, would go a long way in buttressing the rural economy, Managing Director and Chief Executive Officer, Praveen Kadle, tells Sudheer Pal Singh in an interview. Edited excerpts:
What is the broad philosophy behind the latest venture?
In today’s market situation, renewable energy and energy efficiency have become key areas of the economy. The group felt it needed to be in the forefront to address these socio-economic issues. We have been taking steps to identify the carbon footprint generated by various group companies. We are also taking initiatives to generate renewable energy and address water-related issues. The agricultural output in India is very low, owing to ineffective water management. Sustainable agricultural development can be carried out through efficient water management to improve per-capita income in rural India. That is one of the concerns.
Is the move also related to Tata Capital’s alleged strategy of investing in Tata Group companies? After all, the group companies have significant carbon footprint.
Let me clarify. Tata Capital’s investments or loan exposure to group companies is less than 20 per cent. Actually, Tata Capital is more in the area of financing small and medium enterprises (SMEs). This eliminates many of the group companies from Tata Capital’s radar. We are not looking at funding Tata Group companies from the point of view of reducing their carbon footprint. Most of these companies are so big, that they have direct access to any of the major international financing bodies — like IFC. They do not need to come to this joint venture for financing. This venture is formed for solving the problems of small and medium enterprises.
What kind of projects would the new entity, Tata Cleantech Capital Ltd (TCCL), finance? What is the estimated size of the financing assistance?
These would be SMEs, which today, are at the mercy of state electricity boards for power-supply pacts. They need some sustainable long-term energy supplies. Also, this supply should be priced appropriately. We would look at funding companies that are looking at alternate sources of continuous power, so that their productivity and cost of operation is not impacted. In the long term, given the wastage in securing power from normal channels, the cost differential would not be much, compared to conventional power.
Also, as a lot of innovation and research is being carried out, we expect per-unit prices to be comparable to traditional sources. One needs to start thinking much ahead of the market. Based on current market opportunities, we estimate a $750-million business over the next four-five years. TCCL’s equity capital would grow to $120 million by then.
What is the current status of Tata Capital’s plan to raise $1 billion by December? So far, where have the commitments received come from?
We have already received commitments for around $800 million. And, we will achieve the target of $1 billion by December. As we approach the year-end, we are seeing a lot of last-minute interest. So, we may keep the option of raising more funds open. We would decide on this by the year-end. We are getting commitments from all over the world, including domestic financial institutions — big sovereign funds, pension funds, large institutional investors and high net worth individuals.
Where do Tata Capital’s gross non-performing assets (NPAs), as a percentage of total advances, stand compared to the year-ago period?
Our gross NPAs are currently at 1.2 per cent of total advances. These stood at about 2.5 per cent in March 2010. We have brought these down significantly by stressing on the collection-monitoring process and getting the right quality customers.