In view of the global crisis caused by the coronavirus (Covid-19), the Indian government should consider announcing a blanket moratorium on debt repayments for a year, so as to assuage the fears of corporates and individuals over business continuity risk.
The government and the regulator should also allow relaxation of norms for existing corporate loans, which are likely to get impaired, Hemant Kanoria, Chairman, Srei Infrastructure Ltd, said in his letter to the Prime Minister Narendra Modi.
“For all present corporate loans which will get impaired or are already impaired, government and regulator should relax the norms and allow a two-year window for the borrower and the lender to rework the terms of the loan based on the cash flow. Furthermore, the loan accounts should be classified as standard so that no provisioning is needed for the same,” Kanoria said in the letter.
According to a recent report by CRISIL, the increasing clampdown both within and outside India following the Covid-19 outbreak would curtail consumer mobility and lead to deferral of spending. Sectors such as airlines, hotels, malls, multiplexes and restaurants will witness reduced business. Demand for some products such as eggs and poultry could also be impacted. In the services sector, information technology would be affected because of physical restrictions.
“Lower business volumes and occupancies, and suboptimal efficiencies will impact the profitability of companies. While some affected companies may initiate cost-curtailment measures, these may not be enough, given high fixed costs. That could impair the credit profiles,” Subodh Rai, Senior Director, CRISIL Ratings, said in the report.
The novel coronavirus has cast a long shadow over a much-anticipated mild recovery in the Indian economy in fiscal 2021, with the World Health Organization (WHO) declaring it a pandemic. CRISIL has cut its base-case gross domestic product growth forecast for fiscal 2021 to 5.2 per cent, from 5.7 per cent announced recently.
Given the current situation, there is an immediate need for infusion of liquidity into the system. Central and State government agencies should expeditiously clear all outstanding payments to contractors and businesses and all outstanding tax refunds must be settled at the earliest, Kanoria said.
Liquidity for NBFCS
While the slowdown is expected to hurt most industries, the MSME sector is expected to be among the worst affected. In order to ensure a steady flow of funds to support the sector, it is important to pump in adequate liquidity into NBFCs.
Srei suggests that systematically important NBFCs be provided seven-year term loans from banks up to three times of their networth. This apart, Life Insurance Corporation of India or any other government development financial institution should subscribe to 10-year redeemable or convertible preference shares of up to one time of networth of systematically important NBFCs.
“The partial credit guarantee scheme should also be suitably tweaked so as to include within the scheme assets originated up to September 30, 2020, instead of the present deadline of March 31, 2019, so that more number of assets can be brought under its purview,” the letter said.
Srei has also requested for relaxation in forbearance norms under which RBI has allowed banks to extend the MSME loan recast scheme and restructure real estate loans. A similar facility should be extended to the NBFCs, especially for their exposures in the infrastructure sector.