High risk aversion of most lenders is astounding, says Bajaj Finserv CMD

Instead of extending the moratorium by another three months, it would have been better to allow lenders to offer a one-time restructuring only to those who need it, says Sanjiv Bajaj

As head of the country’s largest NBFC, Bajaj Finserv CMD Sanjiv Bajaj does not mince his words. In an interview with Surajeet Das Gupta, he says it is unacceptable that banks should refuse to lend to NBFCs and fears that the extension of the EMI moratorium might alter borrower behaviour. Bajaj also admits there is always a fear of countries’ sovereign rating going down. Edited excerpts:

Do you think the RBI’s extension of the EMI loan moratorium for another three months is enough for the industry?

Borrowers had received a three-month moratorium earlier which was necessary when the entire country was under a lockdown. However, now many parts of the economy are gradually opening up. Instead of extending the moratorium by another three months, it would have been better to allow lenders to offer a one-time restructuring only to those who need it.

The extended moratorium to all has the risk of altering borrower behaviour since they will not pay any EMI for six months. I think, at best, this could be extended to long term or large value loans where there is merit in giving some more time.

The uncertainty over whether the moratorium is to be offered on incremental loans granted by lenders after March 1, 2020 will also impact the ability of the industry to quickly start lending activities, hence the RBI should clarify this.

How has this lockdown affected NBFCs and have they got enough support from the government and banks?
 

The intent of the government and the RBI to support NBFCs at this point is evident. These institutions are the main source of funding for MSMEs, consumers and real estate sectors. However, the high risk aversion of most banks is astounding. I fully understand each institution has to build a good quality business and hence some risk aversion is understandable, but a blanket no to NBFCs isn’t acceptable. Banks must remember they are in the lending business! While the large NBFCs like HDFC and Bajaj Finance are still able to easily raise money, the effect on mid and small NBFCs has been quite severe.
 

At Bajaj Finance, we continue to maintain high liquidity surpluses for our repayment obligations and business growth in the foreseeable future. As of 15 May 2020, the company had Rs 21,000 crore of surplus funds which are parked in mutual funds and central government securities.
 

Do you think the fiscal package is enough or has it failed to generate demand by putting money in buyers’ hands, which is essential for economy?
 

The fiscal stimulus has put food and money in the hands of the most affected, the poor, and this was necessary. In addition, significant announcements have been made to increase liquidity in the system - to banks, NBFCs, housing and the MSME sector. However, the fine print is awaited and I hope it allows for fast action.

What is missing is a demand stimulus. The lockdown in the past two months has stopped almost all demand and supply of goods and services. Most salaried employees have got paid but haven’t spent much. There is a reasonable possibility of our economy bouncing back if we jumpstart it through policy measures.

This requires both demand side and supply side stimulus. As the economy restarts and our engines start chugging again, the incremental support required will be less and the government can return to its focus on fiscal prudence. But the more this is delayed, the higher will be the stimulus that will be required later.

Do you think we need to open up the economy quickly after such a long lockdown?  
 

The latest reports from the US indicate the mortality rate of the virus is much lower than earlier estimates. This is also quite evident in India. While the authorities continue to increase hospital capacity in sensitive areas and while we need to practise social distancing as well as protect the elderly and vulnerable, we should gradually and confidently restart economic activity.

Till we find a cure or a vaccine, we have to strike a balance between protecting lives from the virus and economic hardship.
 

Is there a risk of the fiscal deficit rising and hurting our sovereign rating?
 

The risk does exist. However, these are unusual times and if the money spent by the government mostly goes into productive areas that will build the economy, then that’s the right thing to do. The government should present a three year plan to the international rating agencies showing how the stimulus will be deployed and a route back to fiscal prudence.

As the economy grows, the fiscal deficit ratio will start reducing. We will be in a much more difficult place if we don’t jumpstart the economy and are left with permanent long-term economic damage.
 

Should the government support a wider set of businesses and if so, why?
 

This lockdown has shut all major businesses for over two months now. The continuing pandemic will affect certain sectors such as travel, leisure, hospitality, and entertainment more than others.

Many of these businesses are run by small entrepreneurs and if they don’t get upfront support from the government, they are unlikely to recover soon and some may even perish. Again, one must remember that this support is required only in the short term and is more to rebuild confidence in the business community.
 

Do you think the package offered to MSMEs is good enough and will they be able to get credit?
 

The stimulus package announced for MSMEs is positive. It helps banks and NBFCs lend to this key employer and growth driver of our economy. The guarantee given by the government builds confidence in the system and this is very much required. However, it’s important that the execution rules are simple and enable quick disbursement.