Much of short-term credit demand will be for working capital: TT Srinivasaraghavan

These are definitely welcome measures as they address the specific issues that NBFCs, especially the small and mid-sized ones, have been facing. These, together with the allocations made by the RBI to NABARD, SIDBI and NHB, should provide much-needed relief to them. As always, there is concern over the actual execution of these measures and the flow of money to those who really need it. I do hope that there will be no impediments in the flow of credit to these entities.

I have not had the opportunity to compare the two. However, the one major relaxation this time is that ‘AA paper and below, including unrated paper eligible for investment’ is covered. They are doing what they can, under the circumstances, but ultimately it comes down to the risk appetite of lenders and investors. IL&FS and DHFL are not representative of the typical retail financing NBFCs and it is unfortunate that companies are being penalised for those high-profile failures.

We are in the throes of the pandemic and the flattening of the curve is still elusive. I don’t see anything significant happening on the demand side in Q1 and perhaps some improvement in Q2. Much of the credit demand in the near term will be for working capital rather than asset acquisition. Small businesses, including transport operators whose livelihoods have been frozen for nearly two months, will need working capital to get back on their feet again and rebuild their lives.

Commercial vehicle sales were anyway expected to be dismal in light of the BS-VI changeover. Passenger cars, after a dismal performance in the previous year, were expected to stage a revival, but Covid-19 happened. There are those who believe that with social distancing set to become the norm, demand for ‘personal transport’ could see a surge, especially in the entry-level segments as well as in pre-owned cars. This might provide a boost to car sales in the second half.

These are still early days and I would be wary of making predictions at this stage. It is possible that some new business models might emerge which could lead to changes not only in the commercial vehicle market but also in the larger transportation landscape.

Infrastructure is potentially the other big opportunity. As I recall, the budgetary allocations for this sector are significant and if the various projects get moving, that could make a difference. However, in the near term, much of the focus should be on getting businesses back on their feet. The disruption caused by the pandemic is likely to have far-reaching consequences for thousands of businesses, big and small. Longer working capital cycles will result in severe cash flow strains and banks and NBFCs have a critical role to play in ensuring their recovery.

NBFCs, through their trade body FIDC, have also appealed to the RBI to permit a one-time restructuring of loan accounts in order to provide some degree of relief to transport operators and other small businesses. These are extraordinary times and call for solutions beyond the ordinary.

I would love to meet the person who knows the answer to this one!

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