RECLTD Q1 FY26 earnings call.

Guidance to track

• Management maintained its 12% loan book growth target for the full year, supported by robust sanctions of over ₹1 lakh crore in Q1 itself. The target will be reviewed on a quarterly basis. The loan book grew 10% YoY in Q1 to ₹5.85 lakh crore.
• Net interest margin is expected to remain in the 3.5%-3.75% range going forward, compared to current 3.74%. Interest spread is expected to be maintained at 2.75%-3%. Management indicated cost of funds will decline with rate cuts, offsetting yield pressure.
• Management targets becoming a net-zero NPA company by end of FY26. Currently, 11 NPAs totaling ₹6,147 crore (77% provision coverage) are under resolution through NCLT. Additional provision reversals of ₹700-800 crore expected if remaining stressed assets are resolved.
• Against the target of 1 crore customers by end of 2026-27, approximately 56 lakh customers have applied, with 27% installations completed. Cumulative disbursements to beneficiaries stand at approximately ₹8,500 crore.

Risks flagged

• Analyst (Sarvesh Gupta, Maximal Capital) raised concern about whether REC could impose stricter prepayment conditions in term sheets. CMD acknowledged prepayment policies exist but noted borrowers often prepay due to competitive market access, suggesting prepayment is a sign of borrower financial health rather than a concern.
• IRFC (India Railway Finance Corporation) has indicated willingness to offer spreads as low as 100-150 basis points on infrastructure loans, potentially competing with REC's traditional 2.75%-3% spread. Chairman acknowledged increased competition but expressed confidence in REC's long-term positioning and noted that aggressive pricing may not be sustainable for competitors.
• New RBI prudential guidelines effective October 1, 2025 will require 1% standard asset provision for under-construction projects vs current 0.4%. Management estimates additional provision of approximately ₹100 crore on ₹20,000 crore of new disbursements post-implementation. Since REC already maintains 0.87-0.90% ECL provisions, incremental impact is expected to be limited.
• Analyst (Avinash Singh, Emkay Global) questioned material reduction in provision coverage ratios for Stage 1 and 2 assets, particularly for infrastructure/logistics and renewable energy segments. Management attributed lower PCR to government-guaranteed loans having lower PD and LGD, and better-rated agencies in RE segment, noting total coverage remains above minimum thresholds.

Key quotes

• We resolved, I mean, we are not only just focusing on growth, but we are also focusing on the quality of our loan assets. This year, we have not had any new addition to our NPAs, and our net credit impaired assets have reduced to 0.24% from 0.82%, and we are targeting to become a net-zero NPA company by the end of this financial year.
• Going forward, we are confident that our spread will remain in the region of 2.75%-3%, and our NIM in the range of 3.5%-3.75%.
• We expect that by the FY 2026 end, all the projects, we expect that it will be resolved... we further expect that in case if all these assets are resolved, the total reversal would be around ₹700-₹800 crore during the year itself. That is the minimum which we are expecting.