Rescheduling installments may be better than a moratorium: Ramesh Iyer

"We have made Covid-19-related provisioning in the March quarter. We believe that even by May-end things will open up slowly and normalisation could take another 60 - 90 days," Iyer said

Ramesh Iyer, Vice Chairman and Managing Director, M&M Financial Services says some of the rescue measures announced by the government and the easing of lockdown could give a fillip to vehicle financiers. Iyer, who is also the chairman of Finance Industry Development Council (FIDC), a representative body for non-banking finance companies, tells Hamsini Karthik and Shreepad S Aute, that flexibility to reschedule monthly instalments would benefit NBFCs. Edited excerpts:

You had earlier said that this year’s festive season would be the recovery phase for vehicle financiers.

I’d hold on to the guidance that festival season would see the first turnaround for the industry. If the lockdown starts to ease substantially, then the semi-urban and rural market will start seeing a lot of positive vibes from October onwards. Let’s say the moratorium ends in May, I don’t think customers will be immediately able to start repaying from June onwards. They might take a few months to get back to the street. They may have to repay some small loan liabilities taken during the lockdown. So, sometime post September is when the positivity would return. Assuming that the monsoon is above average, then farm cashflows would also start looking up post October.

You have indicated that the moratorium may not extend beyond May, which is different from what the banks are saying.

Our request, and that of the FIDC, is that instead of a moratorium, allow us to reschedule customer contracts. While somebody might need another 40 days to repay, another person might need a smaller ticket size loan. So, if you give a moratorium to everybody on the retail front, that might not work well. People might avail the moratorium, but it may not be useful for them. Some businesses might need a smaller EMI to service the loan until the situation becomes normal. Take the case of cab aggregators. For the next six months, they might not have adequate business. Even when they come back, they might not have the same size of business. For them, reducing the EMI from Rs 12,000 a month to Rs 8,000 a month, might work better than a 90-day moratorium. Similarly, farmer loans also don’t need a moratorium. They may take moratorium and choose to pay the lender later, while using up the cash. So, if you announce a blanket moratorium, you can’t pick and choose customers.

We are requesting the regulator to allow rescheduling of installments, without additional provisioning and allow only for standard assets, which we can very meticulously use on a customer to customer basis. Customers in green zones may need a shorter time to get back to normal, whereas those in red zones might need more time to get back to business. There is another problem with the moratorium. The repayment culture of customers can change. When we reschedule, the customer will at least make some payment towards the loan during that period. In February, the regulator allowed for one-time restructuring of MSME loans. We want these norms to be extended to retail loans.

Will the measures announced over the past few days for the agri sector and daily-wage labours help the rural economy and your company?

More money in the hands of farmers and reaching out to them in a transparent manner will boost the sentiment for the rural sector. As far as migrant labour is concerned, it is important to allow them to get employment locally (in rural areas). Once labourers are deployed better and they start earning something, rural consumption will restart. Migrant labour also includes drivers. These people could buy second-hand cars/vehicles, or new pickup vehicles and can start living their life. I'm not expecting that they will come back to the metros soon. There is also a lot of discussion around infrastructure storage opening up in the rural market. So, we will once again see what we saw in 2010-14, that when farm and infrastructure sector cashflows improve, the rural story bounce back is phenomenal. If there is more money in the hands of the farmers, I believe, it will first go for discharging the farmers’ liability, rather than acquiring an asset, which will be the second step. Given the harvest season is good, the month of May could be good in terms of collections.

What is your expectation on loss given default (LGD)?

We have made Covid-19-related provisioning in the March quarter. We believe that even by May-end things will open up slowly and normalisation could take another 60 – 90 days. Between June and August, borrowers should be able to service at least one EMI, if not all three, and may not become delinquent accounts by September.

You were piloting consumer durable loans and personal loans. Where do these plans stand now?

Rolling out consumer durable loans will have to be held back for some time as I don’t think that people will come out and buy these assets. People will more likely conserve cash, until they know what lies is in store for them. Extending personal loans to current customers will be an exciting and useful product now, because many customers will need temporary support for 3 – 6 months, until they stabilise their earnings. Hence, such a product will do well and pick up much faster.

The way banks and the regulator have dealt with extending the mortarium to NBFCs, do you feel that has been done more seamlessly and without much confusion?

Initially, when the moratorium was introduced, the understanding was that it would be extended to NBFCs also. Somewhere in the FAQs, that was dropped. Then subsequently, there were some representations and meetings, and banks have now started extending the moratorium to NBFCs, or whosoever wants it. It could have been done earlier, but it has been done now. On the liquidity front, I agree that the long-term repo operations (LTRO) route did not pick up so much. But now, with the new announcement for MSMEs and NBFCs, it will help mid-size and small NBFCs.

Large NBFCs haven’t availed the moratorium.

Look at it this way, we always resorted to good ALM (asset-liability management). We knew inflows were going to be very low, but at the same time, disbursements aren’t high during this period. So, the need for a moratorium does not arise. If at all there was any requirement, we would rather resort to extra borrowing instead of the moratorium. Large NBFCs with a good track record, promoter backing and ratings have not had a problem on draw-down of loans, which is why we aren’t asking for a moratorium. The real issue is for smaller NBFCs, which are not rated and are dependent on banks for borrowing.

Do you believe that the recent measures announced by the finance minister to push liquidity for NBFCs would improve the sentiment towards low-rated or smaller NBFCs?

I think the measures will definitely help the small NBFCs, especially the Rs 45,000 crore scheme (partial credit guarantee scheme). However, the lending institutions will definitely look at the overall performance of the entity and only then will they take a call. However, the measures are definitely aimed at supporting small and medium NBFCs.