Focus on survival and stability this year, look for growth in the next: Srei Infra chief

Businesses across sectors should focus on “survival and stability” during the course of the current financial year. Once they are able to survive and stabilise their operations through the current crisis, then they could look for growth in FY22.

According to Hemant Kanoria, Chairman, Srei Infrastructure Finance, banks and lending institutions should ensure that they work with their clients and support them by providing additional funding, if required, to survive the current crisis.

“If businesses get affected, then it will affect the whole system. So, at present every company will have to go through survival and stability. Growth has to be delayed to 2021-22. For FY21, all companies including banks, NBFCs and all borrowers have to work together. And if we are able to do that, then we could look at growth in FY22,” Kanoria told BusinessLine .

Srei would look to keep itself flexible and work along with its client to enable them to survive and stabilise.

Need for structural measures

A majority of NBFCs lend to consumers at the bottom of the pyramid, a segment which has been worst impacted by the Covid-19 outbreak and the resultant lockdown. Some of the businesses in the segment would take between six months to one year to return anywhere close to normal. There has been wide-scale dislocation and it would call for “structural measures” to jump-start the economy.

“There is a dislocation and RBI realises that and has taken some temporary measures. But it requires a structural thinking and the government has to act as a catalyst to enable the economy to restart,” he said.

While the recent measures announced by RBI provide a temporary relief of liquidity, the lending institutions should be allowed to restructure loans so as to keep those assets standard. If such restructuring is not allowed, then it could impact the Cibil rating of retail borrowers and the credit rating of corporate customers.

“A structural thinking is required…… the more we keep delaying it, the more the dislocation. If forbearance is not allowed by RBI then as soon as they return to operations post Covid-19, people will realise that they don’t have cash flows and there will be a spurt of bad loans,” he said.

If the forbearance norms on NPA are not brought out by the government and RBI very soon, then nearly 85-90 per cent of the loans will turn into NPA and all banks and lending institutions will go bankrupt.

“So, I think (there) is no choice... For the economy, at this juncture, it is important to take that extra measure which is beyond the norm and allow forbearance which is the need of the hour,” he said.

The spurt in bad loans will lead to a vicious cycle with banks and lending institutions getting downgraded by rating institutions and creating a huge ripple effect.

This apart, it is also important for RBI to rethink of ways and means for ensuring long-term funding channels for NBFCs. Currently, NBFCs depend on bank loans, or the short-term bond market for liquidity.

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