While the country is slowly returning to its bustling self, the after math of this great calamity is what poses as a grave threat to the banking sector. This sector is sure to see a rise in the number of bad debts across small & medium businesses.
- Brajesh Kumar Tiwari
The beginning of the financial year 2020 saw 10 Public Sector Banks (PSB) amalgamating into four capital rich banks in a bid to get them at par with global banks across the world. This served as a much-needed push for such PSBs to have the capability to support the financial needs of larger enterprises which in turn would help provide impetus to the growing economy.
Unfortunately, before this major decision could yield positive results, they were confronted with a pandemic that the world was not prepared for. As the country reeled under the shock of how quickly COVID-19 turned into a global pandemic, the government called for a nationwide lockdown. However, banks were given directions to be open to service customers and came under the ‘essential services’ category. Unlike most businesses, banks were unable to give their employees the safety net of working from home and while they did try and encourage their customers to avail of their tele-banking or net-banking services, they still had to put on their masks, adhere to the requisite safety protocols and service their invaluable customers. While everyone applauded healthcare workers and empathized with the plight of lakhs of migrant workers, the banking sector went seemingly unnoticed.
As the public angst grew during this unprecedented time, the government further announced relief packages for various strata of the society. India’s Finance Minister Nirmala Sitharaman announced that the debit cardholders will be able to withdraw cash from any other bank’s ATM till June 30, 2020, without any fee being levied. Sitharaman also waived off the minimum balance fee charged from customers till June 30, 2020. Further, she also directed banks across the country to reduce charges on digital transactions for all businesses and customers till June 30, 2020. The borrowers were given the benefit of a moratorium, thereby giving business some much needed respite to stay afloat till they could resume operations to their full capacity. During this lockdown, the banking sector was the one that went that extra mile to ensure that the consumer is at the centre of all their activities by even engaging with their customers digitally through social media and promoting deals and offers that are relevant at such a time; from tying up with pharmacies and online grocery stores to offer additional discounts to their customers to even helping their customers buy gold on auspicious days from the comfort of their homes, the banking sector truly did reinvent themselves to stay relevant during the lockdown and to justify their ‘essential services’ tag.
The banking sector issued Direct Benefit Transfer (DBT), because of which the Centre could ensure 16.01 crore beneficiaries received approximately Rs 36,659 in their accounts between March 24, 2020 and April 17, 2020 during the lockdown. DBT ensured that the cash benefit was directly credited into the account of the beneficiary and eliminated leakage and improved efficiency. Millions of people across the country benefited instantly as the banking and finance sector worked tirelessly to ensure that our great country faces one less obstacle on its road to recovering from this global pandemic.
While the country is slowly returning to its bustling self, the aftermath of this great calamity is what poses as a grave threat to the banking sector. This sector is sure to see a rise in the number of bad debts across small & medium businesses as well as large enterprises that did not anticipate inactivity for such a long period of time. Experts across the sector are anticipating a steep rise in the number of non-performing assets that banks will have to declare. The CII IBA Financial Conditions Index for Q1 FY 2020-21 recorded a steep drop to below 50 mark for the first time in the past few quarters. Releasing the index for the first quarter of 2020-21, Mr Chandrajit Banerjee, Director General, CII said “The impact of COVID-19 has been much worse than the financial crisis faced by the world including India in 2008. While the lockdown was necessary to mitigate the impact of coronavirus on the population, it has had dire implications on the Financial Conditions of the economy. In this hour of need, Banks along with NFCs and MFIs have the ability to ensure smooth and continuous flow of credit, particularly to MSMEs (micro, small and medium enterprises), farm sector and retail sector and ensure some economic activity.
The measures announced by the Government and RBI, have come as a big relief to them and with an expected upliftment of the lockdown soon, the financial conditions can only improve”.
Due to the lockdown, there are businesses who have been left in a precarious situation not having operated for a single day in months and still have had to retain their employees and workspaces. The pandemic has affected the individuals as well, many of whom had taken loans keeping in mind their steady income and have had to lose their jobs overnight. In both the scenarios, it is the banking sector that will eventually have to bear the brunt of this financial upheaval. The RBI is also monitoring the situation as its evolving and intends to address the problems caused by this global pandemic. The core objective is to ensure that the financial sector and the market stays stable so that finance can smoothly keep flowing to all stakeholders, especially those that have been severely affected by the lockdown.
Over these few months this sector has had to reinvent itself not only from a business continuity perspective but also in the way it has been operating since decades. It had to digitalize not only its own operations but also educate and hand hold each of its customers to move towards a more socially distant way of banking. The financial implications of this lockdown and projections that industry stalwarts are making are grim but it is this sector that was resilient during the 2008 crisis and will show its grit during this period too.
- Brajesh Kumar Tiwari is Associate Professor, Atal Bihari Vajpayee School of Management and Entrepreneurship, Jawaharlal Nehru University, New Delhi. Views expressed are the author’s own.