In my view, if you have capitalisation of interest and principal repayment schedule, the EMI, which will commence post moratorium, will be higher than what is currently running.
By Hariprasad Radhakrishnan
Following the moratorium on repayments announced by the Reserve Bank of India, some caution would be needed as the credit culture in the country should not be impacted, says Sanjaya Gupta, managing director and CEO, PNB Housing Finance. In a conversation with Hariprasad Radhakrishnan, Gupta said new acquisitions might be impacted due to the Covid-19 pandemic. Edited Excerpts
What impact do you think the measures by the RBI, including the moratorium would have on lenders?
The RBI is going out of its way to help the financial sector and the customers at large. On liquidity, cash reserve ratio, repo rate, reverse repo rate, they are on the bullseye. On the repayment moratorium, we will have to be cautious going to the market — as that should not spoil the credit culture in the country. The announcement is saying it is applicable to those loans which are on the books as on March 1, 2020. The asset classification of loans will be carried forward from March 1, 2020, — whether they are standard, substandard, NPA is my assumption. This has not been specified in the press release of March 27, 2020, it is left for the management and board of directors of lending institutions to formulate their respective policies. The only glitch in the approach is that the statutory auditors, regulators’ auditors, rating agencies should not have a different point of view. This will defeat the purpose and lead to unnecessary arbitration of views. On the moratorium side, we cannot say right away what loan components have been included. In my view, if you have capitalisation of interest and principal repayment schedule, the EMI, which will commence post moratorium, will be higher than what is currently running. Later, affordability may become a challenge. As to the principal outstanding on March 1, 2020, one will be adding the future interest of the next three months, and then the revised EMI will be calculated. The revised EMI will be higher.
How much of an impact do you think the pandemic would have on the housing sector, and how is it different from the earlier financial crises?
It is the longevity that will decide the impact. If it continues for a quarter or so, it is going to have a negative impact. If we overcome it in 21 days and break the chain of transmission, the impact would be lesser. The sector is robust, and inherent demand is robust. It doesn’t so happen that overnight, because of Covid-19, entire liquidity dries up. In a company like us, we are operationally robust. At a time when this crisis has emerged, we are still working at 80% capacity. Companies that have invested largely on technology, load balancing, common data base on private cloud etc., would be able to access information from our home network on real-time basis, while those that have their data servers isolated, then work from home will not be an easy task.
Do you think this would lead to a stagnation of inventory, as new launches would also be deferred?
The good part is the festive season is already over – which is a busy season. We are entering into spring and summer, which are lean seasons. New launches from the last couple of years have been next to negligible. Hence, the cash flows were expected to come from the sales which materialised during the festive season – they might get a little slower. They will catch up in a few weeks after the lockdown is over. We are not disbursing via the physical medium, but through the electronic medium. The new acquisitions will certainly get impacted, but the commitments up to 10-15 of March 2020 will get honored.
Given the evolving situation, does the company have a strategy to tackle the crisis in the short and medium terms?
We have a full-blown business continuity plan in action. We are still doing our EOD (end of day) through various virtual platforms. Today, let us not look at incremental business. Our employees’ safety and morale, liquidity, customer service including disbursements, and the wherewithal of IT security are priorities, in equal proportion.