‘Economy likely...’
A large number of companies have suffered a double whammy (those which were already under stress before Covid). Will this become a challenge for banks to decide as to which case to take up?
The RBI has put clear boundary conditions. The first test is these assets should not have overdue above 30 days as on March 1. Second, as a result of Covid, their operations deteriorated in the subsequent quarters. I would think that banks have a rather simple test to measure if a company is eligible or not. The RBI has structured it (scheme) very appropriately, so that there is no second guessing by banks to what the intent was.
How do you see preparations of banks to deal with work based on their experience with large stressed firms in the last five years?
This time around they are going in for a different kind of restructuring, as historically whenever such an exercise was done, the company was into a priori distress and then you looked at restructuring. Here, there is no a priori stress. The distress is due to the Covid pandemic. The assessment is that in space of two years, these companies can come back to normal. Handholding (restructuring) is for that period by which time they should come back. After having looked at what is happening in real economy, my own assessment is that the second quarter performance (Q2FY21) is expected to be far better than that of the first quarter. I think two years is fair time for companies to come out of the pain.
What panel has suggested is for the banking and financial sector to deal with corporates. But the pain is for the economy as whole. What are the steps you would advise for the system and to enhance the effectiveness of the recast?
The dramatic drop in capacity utilisation by corporates contributed to the negative GDP. I think this time what the government has done through various schemes is to address the pain at the lowest link – individuals and companies.
NBFCS are not eligible for restructuring while they may carry out a recast exercise for some companies to whom they have lent. That creates certain anomaly. How do you see it? There could be an entity where bank and NBFC both have given loans. The bank would restructure its loan and that would facilitate efforts to address the pain in the system. My position is that banks should be major lenders and when they restructure the loan, the pain gets alleviated. I get your point they are also borrowers and lenders. The first leg of it (borrowers) is outside of our preview. The regulator will have to look at the NBFC part separately.