'RBI should allow one-time restructuring of loans to help NBFCs'

RBI should consider allowing one-time restructuring of loans based on the cash flow.

The Reserve Bank of India should consider allowing one-time restructuring of loans to help NBFCs weather the current liquidity crisis, says Hemant Kanoria, chairman of Srei Infrastructure Finance. In an interview with Mithun Dasgupta, Kanoria further says infrastructure projects have virtually come to a standstill with migrant workers on their way back home, and this impasse is likely to continue for next few months. Edited excerpts:

The government and the Reserve Bank of India (RBI) have announced a slew of measures to combat the impact of the Covid-19 pandemic on the economy. Have these helped in cushioning the impact of the pandemic and also the subsequent lockdown of economic activities?

The measures announced by the finance minister and RBI in the last few weeks are going to have medium- to long-term benefits and will alleviate the liquidity conundrum to a certain extent. However, in my opinion, a few more steps are needed simultaneously to provide support to all businesses, including the NBFCs. RBI should consider allowing one-time restructuring of loans based on the cash flow. Furthermore, the loan accounts should be classified as “standard” so that no provisioning is needed for the same. This will help stem the tide of NPLs (non-performing loans) and prevent businesses from tipping over into default. If the one-time restructuring is not allowed to the banks, there will be large NPLs.

The government, both central and state, should advise all their agencies to expeditiously clear all outstanding payments to contractors and businesses. Also, all outstanding tax refunds and tax-related disputes must be resolved at the earliest to release payments. Huge sums of money are stuck in arbitration awards against government agencies which have been dragged into the higher courts, leading to inordinate delays. The government should honour the arbitration awards and instead of further litigation, release the payments against the awards. These simple yet effective measures will ensure liquidity for businesses and help many of them survive the current crisis.

NBFCs had been experiencing an acute liquidity crunch even before the outbreak of Covid-19. The pandemic must have worsened the situation. What is the liquidity situation for NBFCs in general and Srei in particular?

Following the IL&FS episode, many NBFCs have been facing a liquidity crunch as banks became cautious lenders and virtually stopped lending to the sector. The outbreak of Covid-19 has accentuated the problem further. Hence, there is an immediate need to allow one-time restructuring of loans to help banks, NBFCs and their borrowers weather the crisis.

Fortunately, at Srei, we have been able to manage our liquidity well. We hope that going forward the situation will gradually improve in view of the support being given by the government and RBI to businesses.

Many of your customers are from the construction and infrastructure sectors, which have been severely affected by the Covid-19 outbreak. According to a recent report on construction equipment by Icra, the sector may see a 15-20% decline in revenues in CY2020. What is your observation?

The infrastructure industry and the construction sector have been experiencing a slowdown for the last two to three years. Following the outbreak of Covid-19 and the subsequent lockdown, the problem has compounded because of severe cash flow crunch. Infra projects have virtually come to a standstill with migrant workers on their way back home. This impasse is likely to continue for next few months.

Our customers are primarily in the infrastructure sector, infra-related and healthcare sectors. For them, the challenge has been monumental, and we have been working closely with them to figure out ways to resolve their problem.

Considering the slowdown in economic activities, what are your expectations on the performance of your company and the industry in the current financial year?

I think that if the above-mentioned practical steps are taken, the businesses and the financial sector can bounce back within 1-2 years. But if not, the recovery will take time. Hence, it is critical to address the practical issues at the ground level. From the point of view of businesses, everyone’s focus at this juncture is now on survival, both in life and in business. No one is expecting substantial growth in revenues and profits in the current financial year.

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