REC Zero NPA Target: Power Sector Lender Aims to Eliminate Bad Loans by 2026

Leading power sector lender REC has set an ambitious zero NPA target by the end of fiscal year 2026, company officials announced on Thursday. This strategic goal follows the organization’s impressive financial performance, with net non-performing assets (NPAs) already reduced to a remarkably low 0.38% and gross NPAs at 1.35% as of March 31, 2025.

The state-owned lender had previously aimed to eliminate NPAs completely by the end of FY25 but has extended the timeline slightly while demonstrating significant progress toward this objective. The zero NPA target underscores REC’s commitment to maintaining exceptional asset quality while continuing to expand its loan portfolio.

REC Financial Performance Shows Strong Growth Across Key Metrics

The power sector lender’s financial performance demonstrated remarkable progress in reducing problem assets from 0.96% in Q2 FY24 to 0.86% by the end of FY24, and now further down to 0.38% as of March 31, 2025. This consistent improvement reflects the company’s effective asset management strategies and robust risk assessment frameworks.

REC’s consolidated net profit climbed by 5.66% year-over-year and 5.74% quarter-on-quarter to approximately ₹4,310 crore during Q4 FY25. This growth was driven by expansion across various business segments, strategic resetting of interest rates on loan assets, and effective management of finance costs.

The government-controlled lender reported consolidated total income of approximately ₹15,348 crore for Q4 FY25, representing an increase from ₹14,287 crore in Q3 FY25 and ₹12,707 crore in Q4 FY24. This 20.78% year-over-year growth demonstrates REC’s ability to generate increasing revenue despite challenging market conditions.

Dividend Announcement Reflects Confidence in REC’s Financial Health

Highlighting confidence in the company’s financial performance, the REC Board has recommended a final dividend of ₹2.60 per share. With this announcement, the total dividend per share for FY25 (including the proposed final dividend) amounts to ₹18, compared to ₹16 per share distributed in FY24.

This 12.5% increase in total dividend reflects management’s positive outlook on the company’s financial trajectory and commitment to delivering value to shareholders while maintaining strong capital adequacy for future growth initiatives.

REC Loan Book Expansion Continues Despite Focus on Asset Quality

Despite its emphasis on reducing NPAs, REC has successfully maintained growth momentum in its loan book. The company’s asset under management (AUM) has continued its upward trajectory, reaching ₹5.66 lakh crore as of March 31, 2025, compared to ₹5.09 lakh crore at the end of the previous fiscal year.

This 11.2% year-over-year growth in the loan book demonstrates that REC has effectively balanced its dual objectives of expanding its financing activities while simultaneously improving asset quality—a challenging feat in the infrastructure financing sector.

Strategic Resolution of Stressed Assets Supports REC Zero NPA Target

During Q4 FY25, REC successfully resolved two stressed assets under the Insolvency and Bankruptcy Code (IBC). KSK Mahanadi Power Company and Corporate Power, with an aggregate outstanding loan amount of ₹3,393.36 crore, were resolved with approximately ₹734 crore written off, accompanied by a corresponding reversal of Expected Credit Loss (ECL) provisions of ₹611 crore.

Currently, REC has 11 projects with combined exposures of ₹6,149 crore under National Company Law Tribunal (NCLT) proceedings. Additionally, one project with ₹1,504 crore exposure is being resolved outside the NCLT framework. The successful resolution of these remaining stressed assets will be crucial for achieving the company’s zero NPA target by March 2026.

Strong Net Worth Growth Supports Future Expansion Plans

Driven by consistent profit growth, REC’s net worth has expanded to ₹77,638 crore as of March 31, 2025, compared to ₹68,783 crore at the end of the previous fiscal year. This 13% year-over-year increase strengthens the company’s financial foundation and enhances its capacity to support future lending activities.

The power sector lender’s capital adequacy ratio (CRAR) stands at a comfortable 25.99% as of March 31, 2025, significantly above regulatory requirements. This robust capital position provides REC with substantial headroom to expand its loan book while maintaining compliance with regulatory guidelines.

Future Outlook: Path to REC Zero NPA Target

Financial analysts view REC’s zero NPA target as ambitious but achievable given the company’s demonstrated success in resolving stressed assets and improving overall asset quality. The power sector lender’s strategic focus on high-quality borrowers, enhanced due diligence processes, and proactive management of potential stress indicators has already yielded significant improvements.

“REC’s systematic approach to reducing NPAs while maintaining loan book growth is commendable,” notes sector analyst Rajiv Sharma. “The company’s strong capital position and effective risk management framework provide a solid foundation for achieving their zero NPA objective by FY26.”

As the power sector continues to evolve with increased focus on renewable energy projects and grid modernization initiatives, REC is well-positioned to capitalize on emerging financing opportunities while maintaining its commitment to exceptional asset quality and sustainable growth.

The company’s progress toward its zero NPA target will be closely monitored by investors and industry observers as a benchmark for asset quality management in the infrastructure financing sector.

Published on May 8, 2025