(The following statement was released by the rating agency)
July 25 - Fitch Ratings has affirmed National Capital Region Planning Board's (NCRPB) National Long-Term Rating at 'Fitch AAA(ind)'. The Outlook is Stable. Fitch has also affirmed NCRPB's INR2bn unsecured, redeemable and non-convertible taxable bonds 2018 at National Long-Term 'Fitch AAA(ind)'.
The ratings continue to reflect NCRPB's strong financial and operational linkages with the central government and its 100% central government ownership. NCRPB is well endowed with huge reserves as the board is exempted from paying income tax and dividend. These exemptions allow NCRPB to transfer its annual surpluses in NCRPB fund, which in FY11 (year end March) totalled INR23.173bn (FYE10: INR21.589bn). This has facilitated NCRPB to provide loans to project implementing agencies at a rate lower than its direct cost of borrowing while maintaining its profitability.
NCRPB's board is chaired by the Minister of Urban Development, the government of India (GoI). Other members of the board include state's chief ministers, federal and state ministers and senior civil servants.
Fitch notes that profit after tax (PAT) grew by only 4.73% in FY11 (25.8% growth in FY10), due to an INR1,585.6m transfer in the bond redemption reserve (FY10: INR285m). PAT is measured by net excess of income over expenditure adjusting for provisions of commitment charges, bond redemption reserves etc.
NCRPB has availed foreign currency loans from Asian Development Bank (ADB) and KfW (German bilateral agency). The rigour of these institutions has added to the professionalism of NCRPB, and the board is now following the international best practices in project appraisals and financing. This has improved NCRPB's project monitoring mechanism. The board has also increased its lending quantum for environmental-friendly projects.
While the loan from Kfw is a fixed interest rate loan, the loan from ADB is a floating interest rate loan. This has made NCRPB susceptible to forex and interest rate risks, and its finances would be affected by its ability to manage these risks. Presently, borrowing in foreign exchange is very low and no hedging policy is being followed.
NCRPB receives annual plan and non-plan grants from the Ministry of Urban Development. The plan grants directly add to NCRPB's fund and non-plan grants are for its establishment and administrative expenditure. Also, NCRPB received periodic plan grants till FY10 from the government of National Capital Territory of Delhi.
Although NCRPB's borrowers mainly comprise weak bodies, the board has been able to manage its assets diligently so far; loan recovery stood closer to 100% until FY11. The presence of senior central and state representatives in the board aids to tide over any unanticipated delay tactics of borrowers, although this fails to completely insulate NCRPB from counterparty credit risk. In the past, NCRPB has been able to recover all its payments inclusive of penal interest for delayed period.
The NCRPB was set up by the GoI in February 1985, under the National Capital Region Planning Board Act, 1985 (NCRPB Act, 1985) with the concurrence of the state legislatures of Haryana, Rajasthan and Uttar Pradesh. The board was set up for the preparation of development plan, and co-ordination, monitoring and implementation of plan for the National Capital Region.