Firms stressed, have little appetite for loans: Industry
CII SAYS ECONOMIC UNCERTAINTIES WERE HAMPERING THE INDUSTRY’S ABILITY TO PLAN FOR FUTURE
nNEW DELHI: 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 circumcredit stances.
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 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, 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.
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). 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 aftermath of the lockdown.