Big NBFCs need direct liquidity line from RBI: Bajaj Finserv's Sanjiv Bajaj

In an interview with Surajeet Das Gupta, Sanjiv Bajaj, chairman and managing director of Bajaj Finserv, charts out the challenges and way forward for the economy as well as NBFCs

Bajaj Finance, the lending and investment arm of Bajaj Finserv, recently announced that it lost around 350,000 customers in just 10 days of the nationwide lockdown, imposed to check the spread of coronavirus disease (Covid-19). In an interview with Surajeet Das Gupta, Sanjiv Bajaj, chairman and managing director of Bajaj Finserv, charts out the challenges and way forward for the economy as well as non-banking financial companies (NBFCs). Edited excerpts:
 

What’s your view on the opening up of the economy? What else needs to be done to kick-start investments?
 

The Covid-19 pandemic has come out of the blue with very little known about it. While our government did impose a timely lockdown to control its spread and also buy time to prepare our medical capacity, it now needs to gradually start opening economic activities in the non-hotspots.
 

Our economy has never experienced this kind of a lockdown, where both demand and supply have stopped. The earlier we restart the economy, the easier it will be to bring it to normalcy. It is also vital for the government and the Reserve Bank of India (RBI) to create a sense of confidence, especially with small business, migrant workers and individual consumers. In the past few weeks, commendable measures have been announced to provide food and some money to the poorer sections of society. What is needed now is to provide working capital and term loans to restart enterprise. They are essential to kick-start the economy from the current standstill.
 

What are the challenges in the banking and financial services sector?
 

Our banks are flush with liquidity, but they aren’t extending funds to NBFCs, housing finance companies and micro-finance institutions because they don’t want to take credit risk. This is wrong because they are playing too safe. However, it will also help if the government covers initial losses.
 

Our economy, with a large domestic consumption base, can restart faster than many other countries, but we need to provide the necessary horsepower at the start. Once the economy starts, it will take many quarters for normalcy to return, since we will need to balance its opening up with the spread of the virus and any new information about its fatality. Hence, continued government and RBI intervention will be required till a cure or vaccine is available.
 

In recent announcements, the RBI has come up with some measures to support NBFCs. Do you think they are adequate?
 

The measures to support various types of NBFCs are most welcome. Like banks, NBFCs support a significant part of our economy and, hence, must be enabled to do their job properly. For the larger ones, say with assets over Rs 10,000 crore, I would like to see a direct liquidity line extended by RBI. Also, public sector banks are not yet extending back-to-back moratorium to smaller NBFCs that are offering moratorium to their customers, but are dependent on these banks for loans. In these challenging times, such anomalies must be quickly removed to avoid any blockages that will prevent our economy from recovering fast.
 

Many say while big NBFCs like yours can ride out the storm, the smaller ones will get wiped out because of the lockdown. Do you share the view?
 

It is true that many smaller and younger NBFCs are at higher risk than the more established and larger ones. These NBFCs must shore up their capital requirement, keep additional liquidity, and maintain conservatism in their lending practices. These are prudent business practices that companies forget in good times, and in a race to grow or show early success, forget that strong businesses are built over multiple growth and credit cycles.
 

What would be the impact on NBFC asset quality as most analysts are expecting a sharp surge in credit costs and bad loan ratios?
 

It is too early to quantify the additional credit costs. It will depend on when the lockdown is finally removed, how soon business normalises and will vary by type of loan.
 

How are your finance and insurance companies doing?
 

They have adapted quite quickly and reasonably efficiently to the work-from-home regime. Productivity of work from home is understandably lower and this impacts some of our response times. We continue to do a reasonable amount of new insurance business, completely digitally. I’m sure we will reorient a number of our processes to work from home, even after the lockdown ends.
 

Do you see consumers going in for aspirational buying after the lockdown is lifted? How do you bring consumers back? Will products go through fundamental changes?
 

Our loans and insurance products take care of a large number of essential requirements — loans to buy groceries, for medical procedures, to buy first house, to insure car, shop, factory and life. As the economy restarts, may be initially at a slower pace, customers will need these types of products and we will be ready to offer them.
 

How do you think your companies are positioned as against the industry over the next 12-18 months?
 

I cannot talk about others, but the past four weeks of lockdown have tested our ability to lead in a digital world, where our teams plan, collaborate and act remotely — but in full alignment with our goals. Our financial strength across companies is good and we sit on significant liquidity. Our focus has always been to build long-term focused businesses and this will help us accelerate businesses over the next 12 to 18 months.
 

With the global economy under stress, do you see a decline of foreign direct investment (FDI) and foreign institutional investor (FII) flows to India over the next two years?
 

There could be some short-term reallocation of global capital towards developed markets. However, countries like India that have a large domestic consumption base and a young population that need multiple products and services, end up growing faster and eventually attract global capital. In addition, our domestic capital has started moving in the past few years from being invested in non-productive assets to financial assets and this will continue, providing an important and dependable source of money. India can emerge as a strong alternative to China in many sectors and we must leverage this once-in-a-lifetime opportunity.