Updated: July 11, 2020 2:27:23 am
SBI Chairman Rajnish Kumar said an extension of the loan moratorium permitted by the Reserve Bank of India (RBI) or a one-time restructuring of loans may not be necessary across the board, adding that the economic recovery that is ongoing is sharper than expected and he is not “over-worried” about non-performing assets.
“It would be premature to make a prediction on further extension of the loan moratorium,” Kumar said, at State Bank of India’s (SBI) banking and economics conclave on Friday. “In my view, moratorium (extension) is not required. (At least) an across the board moratorium is not needed. Some sectors may need relief, that’s a call the RBI will have to make.”
In March, to provide relief to borrowers whose cash flows have been hurt by the COVID pandemic, the central bank had allowed a deferment of loan repayments for 3 months initially and later extended it till August 31. Increasingly, there have been calls for the RBI to extend this moratorium further or come out with a one-time loan restructuring plans which would allow borrowers to renegotiate loan terms to extend the repayment cycle, cut loan rates etc.
Kumar said borrowers in general are cutting their liabilities and that SBI has been seeing loan repayments even from those accounts that were overdue. “Looking at SBI data for the moratorium, it seems to be a very manageable situation … People are cautious about increasing liability; a lot of corporates have deleveraged in the past 4-5 years. Financial system is also more resilient than 3-4 years ago … as most banks have increased their provision coverage ratio.”
“If I sound optimistic that is a problem … because the real economy is not doing well,” said Kumar. “But analysis of our books, which we are doing continuously, (means) I am not over worried.”
He also sounded a cautiously optimistic note about the economy, saying “The recovery has been … sharper than expected, we have to watch for a few months to see whether this trend … will sustain.”
Kumar was not alone in this assessment. Ashu Suyash, CEO and MD of credit rating agency Crisil Ltd, said that “it is not gloom and doom across the board.”
She said sectors like telecom, packaged consumer goods, fertilizers, oil refining, oil and gas distribution and pharmaceuticals will do well. The maximum stress will be seen in airlines, gems and jewellery, auto dealers and real estate, she added. These fall under the so-called consumer discretionary space, that is, for non-essential goods and services.
But other panelists like Sunil Kant Munjal, chairman of Hero Enterprises, weren’t so sanguine. Munjal said a recovery could take 2-3 years and that “normalcy is quite some time away.”
“We need to have a sense of realism about what is going on,” said Munjal. “I am a bit of wary of us getting into a comfort zone just because the rural economy has done well. But at the same time large tracts of industry are way behind. We need a bigger safety net (as job losses mount), we need to find drivers for consumption and demand and need urban revival to take place.”
Even if demand does recover, the rising number of COVID cases and the restrictions that could follow pose a threat to economic growth. Giving the example of the aviation industry, Ronojoy Dutta, CEO of InterGlobe Aviation which operates IndiGo Airlines, said various states have put restrictions that’s hurting demand and he sees his company operating at 85 per cent of capacity only by January.
Panellists also stressed on more government intervention to prop up the economy. Munjal said stwo more doses of fiscal stimulus were necessary especially aimed at important sectors with large multiplier effects.
Kumar said that infrastructure can “help in reviving economy in a big way and that’s where government intervention is necessary.” “Investment rate will not necessarily pick even if interest rates become zero,” he said, adding, “Private capital will come in only when investors are assured of return and no hassles. That’s where the role of the government is important.”
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