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R Baskar Babu: ‘Blanket moratorium may not be the answer; could impact credit culture’

Although it is difficult to ascertain the impact of the second wave at this point of time, as an immediate observation, it has impacted our collection efficiency in April 2021, which fell to 81 per cent from 87 per cent in March 2021.

Written by George Mathew
Mumbai | May 31, 2021 1:21:47 am
R Baskar Babu

R BASKAR BABU, CEO, Suryoday Small Finance Bank (SSFB), spoke to GEORGE MATHEW on the impact of Covid pandemic, especially collections and repayments by customers. Edited excerpts:

How has the second wave of Covid pandemic affected the bank’s business? Are you seeing a decline in repayment or collections?

We have been able to shore up our capital consistently and maintain high liquidity. Although it is difficult to ascertain the impact of the second wave at this point of time, as an immediate observation, it has impacted our collection efficiency in April 2021, which fell to 81 per cent from 87 per cent in March 2021.

During the first lockdown, we all (including industry participants) were unprepared, which led to some degree of panic and apprehension. We have been proactive in this phase, citing the risks to employees. We trust that the mass inoculation drive by the Central and state governments will lead to significant improvement in the next 3-4 months.

After the catastrophic loss of life, we saw a ray of hope with the introduction of Covid-19 vaccine in H2 of FY21. Similarly, on the business front we were back on the recovery path in Q3 of FY21, while we ended the fourth quarter with a strong performance. Although we are not yet out of the woods, with the second wave hitting us harder than other countries, we continue to work towards the state of normalcy in partnership with all employees, customers and all stakeholders of the bank. However, due to the uncertainty created by the second wave, we will have to wait for a quarter to understand the incidental impact on business.

Where’s the stress coming from for a small bank like SSFB? Do you foresee a spike in non-performing assets (NPAs)?

Our gross NPAs, as of March 2021, were 9.4 per cent, compared to the proforma gross NPAs of 9.3 per cent reported in December 2020. On the other hand, PAR (portfolio at risk) 1+DPD (days past due), as of March 2021, reduced to 21 per cent from 29 per cent, as of December 2020. The bank has also carried out one-time restructuring of customers, comprising 3.3 per cent of advances as of March 2021. Furthermore, we have built our buffer provisions by increasing our unutilised floating provision totaling Rs 91.3 crore, as of March 2021. We are maintaining a healthy provision coverage ratio at 63.7 per cent as on March 31, 2021. We still will have to see the impact of the second wave on delinquencies.

Small finance banks serve the customers at the bottom of the pyramid. How are they coping with the situation?

I think as individuals they are better equipped, they understand the pattern. Also, digitalisation has scaled new heights in this pandemic and has pushed even this segment to adapt to that change. We had rolled out an emergency overdraft product in the last pandemic and it has been a success with this segment, although it is a digital product, but the sheer simplicity of transacting and ease has helped them in this period of temporary crisis.

Do you think there is a case for another loan moratorium as mini lockdowns have hit the economy again?

A blanket moratorium as a one-size-fits-all may not be the answer as it is for a short term and could impact the credit culture in certain customer segments. The option of restructuring, however, can offer better flexibility and help align with the customer’s capability to service the loan.

Do you think the banking system needs more liquidity? Do you recommend any specific measures to tackle Covid-related issues?

We believe the regulator has adequately supported the industry through various measures to ensure adequate liquidity in the system. As a policy, we have always maintained a higher capital adequacy (51.5 per cent as of March 2021), considering that 70 per cent of our portfolio is unsecured in nature. In times like these, such a measure has added a significant buffer. In the year gone by, we have also maintained excess liquidity to the extent of 37 per cent of our overall balance sheet size of Rs 6,712 crore.

How relevant are small finance banks in the new environment against the backdrop of the Covid pandemic?

Small finance banks have been able to grow meaningfully in the last 3-4 years, catering to the unbanked and the underbanked segments. In these last few years, they have also been able to create a good liability franchise offering these services to the customer segments they serve. We have always focussed on launching products which are customised to the needs of our customer base … and offer working capital to our JLG customers particularly at the time of stress due to the pandemic. We believe that SFBs are adequately capitalised, grow at a sustained pace and will also be able to play the long-term story well.

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