Veteran banker KV Kamath is of the view the government may soon come up with more measures to help those sections of the economy that have been worst hit, including the micro, small and medium enterprises (MSME) sector.
In an interview with FE, Kamath said there is systemic pain, adding that some handholding is required. “If we have localised the problem to MSME, the government can address the problem in Q4 as it did in Q1,” Kamath said.
While the economic recovery in the September quarter may have come as a “pleasant surprise”, there’s still some pain in the system, he said. However, he believes the improvement is real and here to stay. “Improvement in Q2 is real so most people have come out of it. What probably happened is that production efficiencies contributed to Ebitda improvement. And productivity gains are here to stay,” he said. He also attributed the relatively smaller number of applications for loan recasts to the deleveraging that has happened in the last few years.
Kamath said: “When we looked at the top 26 sectors in the banking system and large corporates, the extent of deleveraging was unprecedented. Almost all recap was done and banks were in a state of good health with clean balance-sheets.”
Citing data since 2000, he pointed out the debt-to-equity ratio of corporates which was then was 4:1 and had come down to 1.8:1 by 2009. “This time if you see 50% of the Sensex companies have hardly any debt. For the remaining, debt to equity ratio is 0.5:1,” Kamath said.
Kamath led a committee appointed by the Reserve Bank of India (RBI) which identified 26 sectors that would be eligible for loan restructuring. Tough boundaries were set for these sectors and as the deadline of December 31 nears for the recast window to shut, the percentage of borrowers seeking recast is expected to be significantly lower than earlier estimates of analysts and rating agencies.