In an interview to The Indian Express, Mahapatra said banks have not slowed down NBFC lending. Excerpts:
How will the Budget impact the banking sector?
The government has reaffirmed its faith in PSU (public sector undertaking) banks as the drivers of growth in the economy. Now the Rs 70,000 crore additional capital that has been promised in the financial year shows that the government wants PSU banks to lead the growth drivers. PSU banks are supporting the NBFC (non-banking financial companies) sector as a systemically important sector of the economy … for purchase of high-rated pooled assets of financially sound NBFCs (up to Rs one lakh crore), the government will provide one time six months’ partial credit guarantee to public sector banks for first loss of up to 10 per cent. This will ease liquidity and also mitigate the risks perceived by the banking sector. As PSU banks command 70 per cent of banking, keeping this in mind, there’s some commonality of service and there should be standardisation of delivery. Through other measures for MSMEs (micro, small and medium enterprises), affordable housing and SHG (self help group) funding, the government wants to drive the growth economic programme through the banking sector.
So do you think NBFCs will come to normalcy with the measures the government announced?
We will have to watch and see. They have set of illiquid assets which are probably stuck in many areas like housing, construction financing and small industries finance. They will require some amount of staying power. Through pool purchases, they can sell pools and they can stay wherever they want.
Will bank lending to NBFCs will pick up now?
Bank lending to NBFCs has never slowed down. Their liquidity crisis is because mutual funds were purchasing commercial papers (CPs) of rated NBFCs. That was pumping a lot of liquidity into the sector.
After the mutual fund sources dried up, suddenly the CPs were not getting rolled over … and the entire thing was coming back to the banking sector. It was not a question of banks not lending, but their major source of funding (mutual funds) has dried up.
Do you think Rs 70,000 crore recapitalisation is enough for PSU banks?
Typically, tier-1 capital required is 9 per cent. So the Rs 70,000 crore will unleash a growth capital ten times, Rs 7 lakh crore, of new bank borrowing. That’ll be enough for whatever is projected for the growth.
Bankruptcy proceedings under IBC are making slow progress. Do you agree?
It’s a new law. Obviously, when a law is introduced, it will be subjected to interpretations and appeals. We have seen NCLT (National Company Law Tribunal), high court and Supreme Court giving judgments in the last one and a half years. This is a normal stabilisation process in any economy. Wherever IBC (Insolvency and Bankruptcy Code) is there … in the UK or the US, it has taken three to five years for the IBC to stabilise and come into its form. We’re seeing a similar cycle here.
Have you been able to arrest the rising NPA levels?
NPAs (non-performing assets) in the corporate side have bottomed out. In some areas like agriculture, it was coming up because of debt waiver schemes. Some MSMEs are also showing stress. Hopefully, there won’t be any new corporate NPAs.
Do you see uptick in credit offtake?
Credit offtake in the first quarter has been very moderate. This is because the first quarter generally waits for monsoon and the Budget was also not there. Now hopefully, it will pick up in the second and third quarter.
Will there be further monetary easing by the RBI in the wake of the growth slowdown?
The RBI has already cut the (Repo) rate by 75 basis points. When liquidity is a problem, then easing of Repo rate will help. When we are looking for good assets to fund, liquidity is not a big problem as of now. I’m neutral about it (rate reduction).
Do you think rural consumption will look up now?
I think it will. There’s a big thrust in the Budget about rural development, affordable housing, MSMEs interest rate subvention, rural road and electrification projects. There are many initiatives oriented towards the rural sector.