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The one-time restructuring of loans will help every firm and prevent cost-cutting measures such as lay-offs.
With zero sales and rising fixed costs, India Inc finance heads are expecting several firms, across sectors, to default on bank loans in the June quarter.
As a result, they have asked the Reserve Bank of India (RBI) to allow one-time restructuring of accounts without downgrading the same to the non-performing asset (NPA) category.
“All sectors have been affected by the Covid-19 outbreak. While some have been severely hit, others have been less affected.
"However, the financial blow remains severe for all. Therefore, permitting restructuring only to some sectors will not solve the problem,” said the finance head of a large conglomerate.
The one-time restructuring of loans will help every firm and prevent cost-cutting measures such as lay-offs, the executive added.
“No company could envisage that its top line would be zero for over a month. Even after lifting of the lockdown, sluggish demand will take its toll on margins,” said the person cited above.
Mid-sized groups, which were doing well just before the outbreak, are already facing a crunch and are planning to cut salaries and delay hiring.
Analysts have already predicted that India would face an economic loss to the tune of $234 billion, or 8.1 per cent of its GDP, assuming that India will remain under partial lockdown at least till May-end.
This is largely on account of higher-than expected output losses in the agriculture, utilities, construction, wholesale and retail, airline, travel and tourism, and media sectors.
Finance heads also said the RBI should defer interest and repayment at least for one year, and to every company.
Though the RBI has announced moratorium of three months till May, CFOs said this was not enough - taking into account the zero sales for over 40 days.
Banks should provide 25 per cent of existing working capital limits as additional limits to the industry, with a backstop by a special purpose vehicle (SPV) held by the government, they added.
“These additional limits are repayable in 24 months from the end of 12 months.
"Unless liquidity is provided to the industry, revival of economy is difficult, given the credit-constrained conditions,” said one of the executives.
Finance heads said the lowering of interest rates across the board, for at least one year, would benefit all firms.
Though the RBI has reduced the repo rate by 2.1 per cent over the past few months, the reduction in MCLR (Marginal Cost of Funds-based Lending Rate) has only been 0.5 per cent.
“The benefit of lowering the repo rate is not transmitted to industry because banks still link their lending rate to MCLR and not to the repo rate, while bank lending in retail is linked to the repo.
"Hence, there is some benefit to retail borrowers but not to industry,” said the CFO of an infrastructure company.
The additional liquidity through the targeted LTRO (Long-Term Repo Operation) should not land up with PSUs and AAA-rated companies.
There should be a mechanism to monitor lending of this LTRO money, with sectoral allocation, to companies that match the investment grade, and not just to triple-A rated firms or public sector entities.
Credit growth in the last few weeks has been negligible, with only the top-rated firms raising funds from banks to repay their older and higher cost loans.
