Banking Frontiers

Analyzing the Impact – Sectors & Geographie­s

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Auto, cement, steel, t extil es, aviation, contractor­s, gems & jewelry, hospitalit­y, transport, consumer durables, manufactur­ing and EOUs are some of the worst impacted sectors during the lockdown. Rathish R, vice president & country head – Business Banking at Federal Bank, identifies travel, tourism, hospitalit­y, discretion­ary retail, real estate and EOUs among these as the most impacted by the unpreceden­ted shutdown.

According to Kotak Mahindra Bank’s Manish Kothari, sectors that involve high ticket purchases, discretion­ary in nature or need people to move out have been impacted the most.

Sectors that are struggling are the ones impacted by decreased disposable income and lack of movement such as travel and auto-components. In these times, the businesses willing to adapt to the changing circumstan­ces will have the best chance of recovery. Saurabh Jhalaria of InCred comments: “Export-oriented businesses like textile, gems & jewelry, fish & meat as well as process industries like refineries, petrochemi­cals, aluminium, iron & steel, where production cannot be stopped are expected to remain under stress in the near term. However, a big hurdle in revival of the MSME businesses, which employ large number of labourers, would be availabili­ty of labour.”

For Fino Payment Bank, lockdown had affected its domestic remittance business, as migrant labour from the industrial belt of the cities like Mumbai, Pune, Delhi, Gurugram, Hyderabad, Chennai and Bangalore have gone back to their native vilalges. Himanshu Mishra says this migration of the labour had affected 75% of our business, although we have recovered 50% of our domestic remittance business in May.

Apart from the obvious impact on sectoral demand, there is an impact on macro-economic factors. Subrata Das believes that there will be micro impact on each entity depending on the nature of their financials and the stage of their evolution. For example, a relatively young company that is yet to reach the desired profitabil­ity or a relatively older company which sells a low margin product – in both these cases 3-5 months of inactivity or subdued activity can wipe out profits of the past 1-2 years, he says.

LEAST IMPACTED SECTORS

FMCG (food and sanitizati­on), healthcare, pharmaceut­icals, food, agri, paper and chemicals, agro, telecom, FMCG, IT and insurance are the least affected sectors during the lockdown. Manish Kothari points out that sectors that are essential for survival and support work from home are least impacted. For example, food processing, retail, pharma / medical supplies, eCommerce, telecom, agricultur­e, etc are some of these.

In general, entities that deal with essential goods and services and have been in business for several years will be more resilient to withstand the shock. They will see faster demand revival and will be better placed to bounce back using their cash reserves, cost-cutting initiative­s and infusion of new credit. Subrata Das adds that it is heartening to see the several crucial measures initiated by both the RBI and the government around relaxation in asset classifica­tion norms, liquidity infusion and credit guarantee. While loss is inevitable, one prepares to convert challenges into opportunit­y,” says he.

Many traders are learning to go digital to better service their localities and have started to offer home delivery services. Hardika Shah shares her views: “For the MSME sector, the ones who can diversify their product offerings will have the best shot at surviving and growing their business. For example, demand for covid prevention products will be here to stay for some time to come.”

Sectors which are more dependent on labour would remain under severe pressure even after easing of lockdown. While liquidity problems would be addressed to some extent driven by government measures, many small businesses are wary of taking fresh loans even if they are backed by a government guarantee, as they are not sure how much demand will be there for their products when they resume business activity.

After the recent lifting of lockdown in some states, there is consumptio­n gaining momentum. The pent-up demand for non-FMCG items and durables is visible on online marketplac­es such as Amazon and Flipkart.

WHICH REGIONS TO RECOVER FAST?

The most immediate challenge for SMEs remains liquidity for paying salaries, dischargin­g vendor bills and meeting other fixed expenses necessitat­ing emergency funds. Special economic package announced for SMEs to be implemente­d through banks will take time as the units have to satisfy the funding norms prescribed by the banks.

Alexander George Muthoot says the gold loan NBFCs are the source for immediate and easy funding for the SME sector. These loans can be a bridge finance to restart their operations till the bank finance is released. “Hence, we expect good business opportunit­y from all the regions across India,” says he.

In terms of regions that can expect business recovery, this will depend on the government’s guidelines on which ones are coming out of the containmen­t zones and are being marked green. Tier 2 and 3 cities are better poised than larger metros to recover effectivel­y in part due to availabili­ty of labourers and lower population density. These regions are coming out of the containmen­t zones faster than typical manufactur­ing areas in cities like Mumbai.

Subrata Das says: “When it comes to region, it is a dynamicall­y changing the landscape. Bangalore is currently less affected than Mumbai. This scenario could be transient, and we will have to watch out for zone-wise classifica­tion on real-time basis and evaluation on a caseby-case basis.”

He adds: “In this hour of crisis, our intention is to assign due weightage to customers’ previous records of repayment as well as assess the future cash flows and be ready with a solution for customers” added Anuj.

Saurabh Jhalaria expects that the revival would be faster in semi-urban and rural areas and tier 2 and 3 cities would give good business post lifting of the lockdown. Businesses like FMCG (kirana and grocery stores, food, and sanitation), pharmaceut­icals, telecom ser vices, IT hardware, security & surveillan­ce that caters to the essential needs or are related to the enabling of digital access and delivery of services would be seeing a rise in demand.

The rural economy would show more resilience in current markets. Industry sectors like manufactur­ing, infra, real estate, which deploy semi-skilled or skilled worker segments will struggle before stabilisin­g as many migrant workers will not come back quickly. The cost of low skilled or re-skilled workers would spike the labour costs in the short run. The overall dynamics of lower raw material costs but higher labour costs would play out in FY21. Manish Jaiswal maintains that consumer confidence arising from long-term stability and higher disposal income will be a key driver for pick-up in demand and the same will be contingent on vaccine discovery or low cost covid testing kits. “Living with uncertaint­y will be the new normal and those with low leverage, high agility will fare better in the covid business test,” says he.

BUSINESS ROADMAP

In the current scenario, geographie­s which are less impacted and likely to bounce back faster are in the southern region such as cities like Bangalore and Hyderabad. Some parts of the north, especially, Haryana and Punjab, could be the next. The last ones would be the main centers such as Delhi NCR, Mumbai, Ahmedabad, Pune, Jaipur etc.

The lesser affected regions are expected to open faster and may throw up marginally better opportunit­ies in the near term. Manish Kothari assumes that apart from sectors that cater to essential ser vices, sectors that are expected to recover faster are those with smaller ticket discretion­ary spend, those that are catering to the rural economy, or those where government spending related consumptio­n could happen like consumer durables, education, fertilizer­s, tractors, two-wheelers, cement, etc.

Rathish R makes a point: “We foresee a spurt in growth from clusters in Gujarat, Andhra Pradesh, Haryana and Maharashtr­a because of t he central government’s Self-Reliant India Mission. e-commerce and home delivery, healthcare and companies that are into providing services which enable digital work and office systems, entertainm­ent, etc, will see a rise in demand due to change in people’s behaviour.”

Fino Payments Bank’s business in rural areas has reached normal levels as migrants have left the cities and came to rural areas. The migrants are trying to establish their own businesses in their native places, and they are looking for new opportunit­ies. The bank is receiving most of the new merchant requests from the migrants in the rural areas. Himanshu Mishra foresees these business probabilit­ies: “We have seen rise in the business in rural India. In the coming days, we will see rise in the business from the industrial areas of Mumbai, Delhi, Surat, Valsad, Bangalore, Hyderabad, and Calcutta, as migrants would be back from their native place to cities. We have around 200,000 merchants and we add around 8000-10,000 merchants every month. During the lockdown period, awareness about our merchant points and their visibility have increased and we have added 17,000 new merchants,” says he.

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 ??  ?? Saurabh Jhalaria is working on identifyin­g new loan eligibilit­y, especially when the business has been virtually zero in the last 2 months
Saurabh Jhalaria is working on identifyin­g new loan eligibilit­y, especially when the business has been virtually zero in the last 2 months
 ??  ?? Navin Saini wants to reduce opex and work with a efficient workforce that can multitask. He wants to use the latest digital tools to meet and engage with teams & partners
Navin Saini wants to reduce opex and work with a efficient workforce that can multitask. He wants to use the latest digital tools to meet and engage with teams & partners

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