State Bank of India (SBI), country’s largest lender, is not hugely concerned about a pile up of bad debt due to the Covid-19 crisis and doesn’t see the need for a blanket extension of moratorium for every sector after August.
“During a crisis time, I don’t want to sound very optimistic on the NPA front, but based on analysis of our book, which we are doing continuously, I am not over-worried. The emphasis is on the word ‘over’,” SBI chairman Rajnish Kumar said at the bank’s flagship Banking and Economics Conclave, held virtually.
While the chairman of the country’s largest bank admitted that non-performing assets (NPAs) are difficult at this stage to predict, looking only at the data of SBI for moratorium, “it seems to be a very manageable situation.” According to Kumar, people are very cautious about increasing their liability. Especially in retail, a large number of people are paying up. Small and medium enterprises have also started paying. The case for corporates is interesting in that these companies have enough liquidity, but want to preserve their cash now by availing moratorium.
However, certain sectors definitely need help, especially those that came into the crisis without shedding their leverage. In the past four-five years most of the companies have shed their leverage, and banks too have increased their provision coverage ratio, which has given banks better resilience to face a spurt in bad debt.
According to Kumar, the six-months moratorium is itself a kind of mini-restructuring. Further extension in moratorium could be needed based on the need of the sector, or even on a case by case basis, but not for all.
“The aviation sector needs help, but everybody may not need the same kind of help. Nothing is required across the board,” Kumar said. Rather, if a corporate can give a picture of its cash flow, “only then any repayment pause or deep restructuring can be done.”
Ronojoy Dutta, CEO of InterGlobe Aviation, which runs the airlines IndiGo, concurred with the SBI chairman. According to Dutta, 40 per cent of the airlines costs are fixed, and therefore, during the lockdown, when Indigo was not flying, it was burning rs 40 crore a day. That number has come down now as the airlines has resumed flying, but he did not disclose the daily losses being incurred by the airlines. For now, the occupancy rate could be 30 per cent, but there has been an increase in demand in the passenger segment as ticket prices have come down, even as the travel restriction is really hurting.
“We are now 30 per cent now, we must be back to 85 per cent going forward,” Dutta said.
Global airlines being in stress and filing for bankruptcies is good news for Indian aviation sector, according to Dutta. The global hubs will shrink due to the crisis and this will lead them to desist from overcharging airlines.
But demand hit and job losses are real and the economy may take at least three years to come back to its pre-covid level. According to Sunil Kant Munjal, Chairman of Hero Enterprises, the prospect of job losses is “quite scary”, and can reach upwards of 20 per cent.
“We have not thought about the social fallout of that. This is something that we never experienced in our living memory. Small and mid-sized companies are scared to bring people back. The moto is survival now, recovery sometime away, and then we will thrive,” Munjal said.
Munjal’s prescription is to industrialise rural areas so that jobs are generated, and India’s competitiveness increases in a global scale. At the same time, the urban areas must lean more on robotics and artificial intelligence to make a quantum leap. Businesses are going to increasingly depend on technology, and a model for global competitiveness should be developed.
” Govt must be prepared at least two more fiscal support sectorial and even to individual cases,” Munjal said.
“Serious leadership is needed everywhere and all in one direction,” Munjal said, even as he said that businesses moving out of India is not a new trend, but is happening for at least two years. While other countries in Asia has benefited from that, India hasn’t so far.
Predicting that the economic recovery could be U-shaped, and will take years, Piramal Industries Chairman Ajay Piramal said it is paramount that the industry should be given special care by the authorities. Slashing of real estate prices won’t make a difference, as people will not be interested in investing in real estate.
“Real estate is what drives the economy. Here even unskilled people also get employment. More than 250 other industries are related to the real estate,” Piramal said.
“Prices are not going to make a difference. People need to feel confident that they can spend. That is the biggest challenge. Confidence is needed,” Piramal said, adding high number of taxes and fees is tying down the sector more than anything else.
He also noted that private banks and mutual funds must lend to the NBFC sectors. The liquidity issue has been addressed by the measures taken by the Reserve Bank of India and the government, but only better rated NBFCs are able to raise money.
Ashu Suyash, Managing Director and CEO of rating agency Crisil said despite an uptick in NPA, which could be at a 15 year high, the situation is not as grim as in early 90s.
“Per se, the economy is in better place. It is now much larger, much more resilient. Sure, there will be an uptick in cases and it’s not pandemic induced. For 12 months, you are not taking up anything. As the moratorium gets lifted, perhaps some kind of covid-specific, or perhaps covid-oriented restructuring will be needed,” Suyash said.
According to Suyash, with slowing consumption, employment is going to be hit. In the Rs 12 trillion universe of Crisil rated companies, there is vulnerability in 52 per cent of the companies by size and 68 per cent in volume.
“Recovery is going to be slow, and for three years it is not going to come back to pre-covid normal level,” Suyash said, adding there could be 10 per cent permanent hit to the economy due to Covid.
SBI Chairman Kumar said the government must concentrate on infrastructure spending as that would create jobs and demand. However, he was not very hopeful of private investment as there is not much of visibility on demand revival for non-essential goods and equity capital in the private sector remain scarce.
“Private investment can come in when there is return and no hassles. Interest rate is only one factor, you make it zero and expect that investment will pick up, that is not going to happen,” Kumar said.