Put Your Head Down And Play The Difficult Over, And There Will Be Opportunities To Score Fours And Sixes

The Covid-19 pandemic has posed a fresh set of challenges to the already slowing Indian economy as well as to the financial services sector, which has been reeling under a huge pile of non-performing assets (NPAs) over the last few years.

Lost opportunity?

With the lockdown already washing out the first quarter and the pandemic showing no sign of easing, will FY21 be a year of lost opportunity for the financial sector? Will non-performing assets, which appeared to be coming under control, flare up again once the moratorium ends? What will be the impact of an one-time restructuring of debt? When will the recovery emerge?

These were some of the issues that were discussed at the BusinessLine Knowledge Series Webinar, ‘Will Banks See a Second Wave of NPAs?’, moderated by Deputy Editor Surabhi on Friday.

Shyam Srinivasan, MD and CEO of Federal Bank, said: “While we do not have any history or textbook reaction to deal with anything like the current pandemic, one should not think of the whole FY21 as a lost case. I think we should take our horizon up to two financial years and try to look at life beyond this period.”

Drawing an cricketing analogy to highlight both the challenges and opportunities available from the pandemic, Srinivasan said: “Put your head down and play the difficult over, and there will be opportunities to score your fours and sixes.”

Seconding this opinion Krishnan Sitaraman, Senior Director-Financial Sector & Structured Finance Ratings at CRISIL, also said one should look at the issue slightly medium-term horizon. “Within this yearApril to June will be a stressed period. With lockdown getting released in many parts of the country, we should see some element of demand pick-up coming in the second part of this fiscal in terms of economic activity as well as pent-up demand.”

However, VP Nandakumar, MD and CEO of Manappuram Finance, was less optimistic. He said there is no visibility to the end of the pandemic. “The challenge is that we are not seeing the end of the tunnel. Even in case of demonetisation, we could see the end of the tunnel, but in this case, we could not see where it would end.”

Noting that the rural situation is much better due to better monsoon and infrastructure spending, Nandakumar said the major challenge now is the mind set. “The emphasis here is how to revive the sentiment of the common man.”

On the sectoral impact, Sitaraman said sectors in the discretionary category, such as real estate, aviation, auto, gems and jewels were impacted, while essential commodities have not been impacted much.

However, Federal Bank’s Srinivasan said: “There will be winners in every sector and we should not paint everyone in the same brush based on their sector. Even in the relatively higher stressed sector, there will be very good players who will begin to consolidate their position.

Rural India

Highlighting that the morale of people in rural India is much better, Nandakumar said Manappuram Finance, which has 30 per cent of its portfolio in microfinance, was able to make 65 per cent collection last month, which will go up to 90 per cent next month. On NPAs, CRISIL’s Sitaraman said since the RBI’s moratorium is available till August, the true picture will emerge only from September.

“NPAs should go up. We had seen gross NPA peaking in March 2018 to 11.5 per cent, which came down to 9.4 per cent in March 2019, and we expect it to be around 9 per cent for March 2020. Even if this goes up, it should not be higher than what we have seen in March 2018.”

On the growing clamour for one-time loan restructuring of loans, Srinivasan said the idea is very good and the regulator has several tools to ensure the right usage of such restructuring by both customers as well as financial institutions.

He also added that different sectors may get different restructuring plans based on the severity of the impact. He hoped that the regulator would come out with a plan quickly.

The webinar also discussed the impact of IBC suspension for six months, credit demand, risk aversion by the banks, and the efficacy of a ‘bad bank’ in absorbing the bad loans in the system.