As corporate cash flows feel the impact because of the coronavirus (COVID-19) pandemic, Indian lenders are seeking Reserve Bank of India’s nod to offer relief to borrowers, and not classify the affected sectors as bad loans in the March quarter.
State Bank of India Chairman Rajnish Kumar said banks were assessing sectors such as aviation, tourism, small transport operators that will be negatively impacted because of COVID-19. “There will some effect on the economy,” said he.
According to a source, banks are ready to offer easier credit to small and medium-sized companies that would face maximum pressure in the current quarter as sales falter because of supply chain disruptions and lack of customers.
“We are getting representations from companies to delay loan repayments and we have sought the RBI’s clearance for that. As this is a Black Swan event, we think the companies do have a case,” said a banker.
BofA Securities has estimated that a month’s shutdown will cost about 50 basis points of annual gross domestic product (GDP) of India.
The bankers are also worried about the fact that growth in credit to the industrial sector has moderated to 1.6 per cent because of single-digit growth in medium and large industries at 2.5 per cent and 1.8 per cent, respectively.
Besides, some of the large sectors that account for around 70 per cent share of the overall industrial credit had negative to slow credit growth, which includes infrastructure, petroleum, chemicals, metals and food processing. Moreover, these large industrial segments accounted for a majority of bad loans in the third quarter, thus, further impacting credit growth.
Corporate finance heads said the pandemic could lead to disruption in the March quarter. “The scenario is very bad. There should be a moratorium on principal repayment for two years and interest for six months for corporates. The net present value of the loans also should also be protected by adjusting the rate of interest,” Prabal Banerjee, group finance director, Bajaj group.
The moratorium should be for high risk services sector, including airlines, airports, hotels, malls, multiplexes, restaurants and retailers. “While some affected companies may move to cut cost, these may not be enough because of inflexible overheads and, therefore, their credit profiles could be impaired,” rating firm CRISIL warned in a note issued on Thursday.
While COVID-19 might not have a direct impact in some sectors such as steel, gems and jewellery, construction & engineering, and textiles, the current global and domestic economic slowdown will impact demand and realisation.