Firms stressed, have little appetite for loans: Industry

Indian industry on Tuesday pointed to some encouraging signs of recovery on the back of a resurgent rural economy, but feared for stressed sectors such as aviation, hotels and commercial vehicles, and said that companies have little appetite for loans due to their inability to service debt.

These points were made in two separate statements from two apex associations.

The Confederation of Indian Industry (CII) said economic uncertainties were hampering the industry’s ability to plan for future, while the Associated Chambers of Commerce and Industry of India (Assocham) said companies were hesitant to take credit risk in these circumstances.

Reeling under debt-ridden balance sheets and economic uncertainties in the face of the Covid-19 crisis, Indian industry is left with little appetite for anymore loans, with the result that most of bank deposits are either being parked with the Reserve Bank of India (RBI) or used by the central bank to fund ever-increasing government borrowings, Assocham said in its statement.

Barring a few, most of the sectors witnessed de-growth in credit deployment with construction witnessing 3.7% contraction, gems and jewellery (-3.7%), and leather and leather products (-4.4%), it added.

CII pointed to the difference between the current downturn facing India --4.5% contraction in FY-21 as projected by the International Monetary Fund (IMF)-- as compared to other such slowdowns. “It is pertinent to note that the recession staring at us in the current year is different from the previous recorded episodes of recession which were all triggered by a monsoon failure. This year, the agricultural sector has emerged as the beacon of hope for India’s economy,” the CII statement said.

“On the services side, IT sector is expected to grow at about 0-5% in FY 21. Companies in this sector are well capitalised with no layoffs expected. While the growth in hospitals is likely to be flat, the crisis has expedited digital health servicing which otherwise would have taken a few years to actualise,” it added.

Deepak Sood, secretary general of Assocham, said the main issue at hand is capability to service a debt rather than the availability of loans. “With a large number of industries still operating at less than half the capacity, leveraging their balance sheets further would be counterproductive,” he said.

“Even after meeting the increased requirement of the government borrowings, the system is flush with liquidity with virtually no takers,” Sood said, adding that RBI’s Monetary Policy Committee (MPC) should brainstorm on this difficult situation, when it meets for the credit policy review, scheduled next month.

He also said he was expecting a one-time loan restructuring.

In a virtual conference between RBI governor Shaltikanta Das and CII members on Monday, HDFC chairman Deepak Parekh and Kotak Mahindra Bank vice-chairman and managing director Uday Kotak also proposed a one-time loan restructuring scheme to ease stress on both businesses and lenders because of disruptions due to Covid-19 pandemic. Governor Das said that the suggestion was noted.

A one-time restructuring permits lenders to extend the tenure of loan tenures or change payment terms to save the account from becoming a non-performing asset (NPS). The central bank is, however, opposed to the idea because in the past loan restructuring led to evergreening of loans rather than recognising them as bad loans.

Chandrajit Banerjee, director general of CII, said there are early signs of recovery, but it is critical to build on these, by “deploying all the policy levers”.

He said there are “promising signs” pointing towards a “V-shaped recovery” in the immediate aftermath of the lockdown.

“In order to nurture the nascent signs of recovery, it is important to mitigate the uncertainties that are currently prevailing regarding the restrictions. Corporates are unable to plan beyond a horizon of a few weeks, affecting all operations,” he added.

He said business activities “must be allowed to function, by removing the uncertainties associated with imposing mini-lockdowns”. Although it is not possible to predict the course of the pandemic, a dashboard approach, triggering predictable responses based on the progression of infections, can reduce uncertainty and boost both consumer and industry confidence, he added.