In the retail segment, SBI has observed that its borrowers are hesitant to increase their liabilities and a large number of people are paying.
There may not be a need for a system-wide loan moratorium, of the kind being offered between March and August, even though some sectors will continue to need support, State Bank of India (SBI) chairman Rajnish Kumar said on Friday. These sectors include aviation, gems and jewellery and hospitality. The SBI chief proposed that companies be placed in three buckets – first, where the working capital cycle has to be readjusted; second, where term loans have to be realigned in conjunction with cash flows; and third, where losses are unsustainable and deep restructuring will be the only way out.
Kumar said that it is still premature to make a prediction on whether it would be extended adding that the percentage of borrowers opting for the moratorium is small. “..if you ask me, across-the-board moratorium is not required anymore after August 31. However, certain sectors may need some relief and, based on the data available with the Reserve Bank of India, a calibrated response from the RBI is what I expect,” he said at the seventh edition of SBI’s banking and economics conclave. Kumar’s comments are significant at a time when there are murmurs of the government considering an extension of the moratorium all the way till the end of 2020.
Kumar said the situation was manageable in terms of moratorium applications. In the retail segment, SBI has observed that its borrowers are hesitant to increase their liabilities and a large number of people are paying. In special mention accounts (SMA), there have been considerable repayments. As far as corporates as concerned, they have opted in for the moratorium, but this has more to do with cash conservation rather than an inability to repay. “In the last four-five years, a lot of companies have deleveraged and the other ones have disappeared. For most of the banks, their provision coverage ratio has gone up. So the resilience in the financial system is much higher than it was four years ago,” Kumar observed.
The SBI chairman made a case for treating companies in three separate buckets. The first set consists of firms which qualify for the RBI’s dispensation on working capital assessments till March 31, 2021. “There are certain sectors like hotels and airports, who don’t need working capital and it is all about the repayment of term loan instalments and it can be aligned with their cash flows,” Kumar said. He added that this will be clear only when we come out of this situation. At present, it is difficult to obtain any prediction of their cash flows.
“The third (set) are the accounts which were in trouble even before March 28 or the Covid situation – so (that’s) wherever it is deep restructuring, wherever the losses are such that they are not sustainable such that they have to be bifurcated and the loss has to be borne by somebody, either by the corporate or partly by the bank.”
Kumar observed the economic scenario has started to pick up from its lows in April. “May was better than April and in June we saw a smart recovery. What we are hearing from the ground is that the rural areas have been less affected,” he said, adding that in some parts of the country, such as Maharashtra, Tamil Nadu and the National Capital Region (NCR), which also happen to be hubs of economic activity, there continues to be a disruption experienced in supply chains. “On the whole, the impact was definitely huge and unprecedented, but there has been a recovery and we have to watch for a few more months (to see) whether this trend of recovery can continue,” he said.
At the same time, he described the Covid-induced economic disruption in India as “gigantic” and said the crisis easily surpasses the 2008 global financial crisis in its scale. “In our predictions, discretionary consumption may slow this financial year,” he said.
The SBI chief said the lender’s investments were driven by “commercial considerations”. On the question of SBI being left with little choice as the finance ministry is closely watching these investments, Kumar said, “All are commercial considerations by SBI..Nobody has said you have to be reckless. We are not a fair-weather friend. We have always supported in good times and bad times.” SBI Caps, a subsidiary of SBI had earlier set up a special purpose vehicle (SPV) for below rated non-banking financial companies (NBFCs) to support Rs 30,000 crore under the special liquidity scheme by the government. SBI had also made investment of Rs 6,050 crore investment in Yes Bank, as per reconstruction plan given by the government. The bank has also approved an investment of up to Rs 1,760 crore in Yes Bank in its forthcoming follow-on public (FPO) offer.