REC Ltd Q2 FY27 Earnings Call — Analysis (NSE: RECLTD)

REC reported an all-time high loan book of ₹6,17,000 Cr with net credit-impaired assets down to 0.11%, guiding for 10-12% FY27 loan growth as prepayment headwinds subside.

4 Nov 2026 · Analysis by Alpha Inflection

Result quality: poor — Earnings declined. Management sentiment: optimistic.

The take

H1FY27 Total Income ₹29,068 Cr . New guidance — FY27 rec limited fy27 loan book grow… 10% to 12% . New story: Prepayment Headwinds Normalization .

Results

H1FY27 net profit reached ₹7,541 Cr on total income of ₹29,068 Cr with loan book expanding 6% YoY to ₹6,17,000 Cr and net credit-impaired assets dropping to 0.11%.

Financial highlights

Guidance

Management guided for 10% to 12% loan book growth in FY27, disbursements exceeding ₹2,00,000 Cr, and sustainable NIMs between 3.00% and 3.22%.

What management committed to

• [REC Limited] is targeting to achieve around 10% to 12% loan book growth by the end of FY27. — 10% to 12%, FY27
• [REC Limited] has set a target of over ₹2 lakh crores for our disbursements in FY27. — over INR2 lakh crores, FY27
• [REC Limited] will maintain sustainable NIMs of over 3% to 3.22% for the year. — 3% - 3.2%, FY27
• [REC Limited] projects documented projects where disbursement is just to start of close to ₹70,000 crores to be disbursed over Q3 and Q4 FY27. — INR70,000 crores, Q4FY27
• [REC Limited] will maintain straight 1% provisioning on additional loan book for ECL. — straight 1%, in future also
• [REC Limited] plans to expand its thermal generation loan book from ₹1.52 lakh crores to around ₹2.5 lakh crores by 2032. — around INR2.5 lakh crores, FY32
• [REC Limited] is committed to bringing Scope 1 and Scope 2 emissions to 0 to become the first carbon-neutral financial organization in India in FY27. — 0, FY27

Key themes

Loan growth revival and asset quality strength

How the narrative shifted

• Prepayment Headwinds Normalization: Management highlights that prepayment run-rates have collapsed from ₹1,00,000 Cr in FY26 to ₹19,000 Cr in H1FY27, allowing strong gross disbursements to translate directly into net loan book growth.
• Competitive Intensity and NIM Protection: REC acknowledges bank competition and power sector de-risking are pressuring lending spreads, but asserts its fixed-rate liability structure and scale allow sustainable 3.0-3.2% NIMs.
• Power Sector Capex Opportunities: Massive multi-year capex requirements across thermal generation (80 GW planned), transmission (₹1.85 lakh Cr scheme), and renewable corridors position REC for long-term balance sheet expansion.
• Impeccable Asset Quality and Zero Private Slippages: Asset quality remains a hallmark with 19 consecutive quarters of zero new NPAs, Stage 2 assets down 74% QoQ, and state power loans carrying zero historic default loss.
• PFC-REC Merger Regulatory Trajectory: Merger approvals have cleared RBI and exchange NOCs and now await Union Cabinet approval, with confirmation that the combined ₹12 lakh Cr entity will retain majority government ownership.

Operational commentary

• Prepayment intensity moderated sharply to ₹19,000 Cr in H1FY27 compared to ~₹1,00,000 Cr in FY26, removing a primary drag on net loan book growth.
• Documented pipeline with disbursements yet to commence stands at ~₹70,000 Cr, supported by a committed sanction pool of ₹2,56,000 Cr.
• Renewable energy (RE) loan book reached ₹86,660 Cr (+27% YoY), representing 14% of the total loan portfolio.
• Infrastructure & Logistics (I&L) financing grew to ₹62,000 Cr, now accounting for 10% of total loan assets.
• Zero new NPAs reported across the portfolio for 19 consecutive quarters; all legacy NPAs reside purely in the private sector.
• Stage 2 assets declined sharply from ₹12,350 Cr in Q1FY27 to ₹3,235 Cr in Q2FY27 with a provision cover of 4.5%.
• Won sole/joint financing mandate for NTPC Meja thermal project involving an estimated ₹27,000 Cr total disbursement.
• Rooftop Solar Scheme execution reached ~55 lakh installations against a full-year target of 1.0 Cr installations.

Analyst Q&A

• Q. What is driving NIM compression, and what is the trajectory of borrowing costs and floating rate book?

  Director of Finance explained that only 24% of borrowings are floating rate (INR term loans and select ECBs), matched by ~25% floating rate assets, insulating PAT. Concessionary issuances like zero-coupon bonds (-100 bps) and pursuit of withholding tax exemptions on ECBs will help contain costs.

• Q. Why has loan book growth lagged disbursement growth historically, and what gives confidence in 10-12% growth?

  CMD clarified that FY26 had ₹1,00,000 Cr in prepayments which neutralized ₹2.11 lakh Cr disbursements; H1FY27 prepayments have dropped to ₹19,000 Cr. Combined with bank sectoral exposure limits and a ₹70,000 Cr documented pending disbursement pipeline, loan growth will accelerate.

• Q. Will lending yields see further downside due to state utility rebate requests and competition?

  Director of Finance noted that almost all rebate proposals have settled, and with market yield curves shifting upward and ~100% of loans having annual resets/benchmarks, yields should stabilize or slightly improve.

• Q. What is the status of the merger with Power Finance Corporation (PFC) regarding government shareholding?

  Both boards approved absorption into PFC with NOCs received from RBI and stock exchanges; draft merger scheme is awaiting Union Cabinet approval, with the strict condition that the merged entity remains a government-controlled company.

• Q. What is the exact allocation and financed amount for smart meters under RDSS for REC-assigned states?

  CMD stated that specific split data was not immediately available on the call and directed the analyst to email Investor Relations for the precise figures.

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