New Delhi: The economic package announced by the Narendra Modi government and the Reserve Bank of India (RBI) for companies is insufficient, Srei Infrastructure Finance chairman Hemant Kanoria said, pointing out that a one-time loan restructuring and deferment in tax payments may be needed for the survival of many firms.
In a video interview to ThePrint, the Srei chief said, “The government needs to think what are the economic measures which are required to be taken in these uncertain times. All the stimulus packages that have come in for businesses is by way of credit. The stimulus package for businesses — in the measure and manner required — has not come in.”
Srei Infrastructure Finance is a non-banking finance company (NBFC), which is primarily focussed on asset financing and leasing.
Kanoria said the restructuring will help companies align their cash flows and banks to fix the repayments depending on the cash flows of the firms. He added that “one-time loan restructuring will not cost the government a single penny” and questioned the “vacillation” between the government and the RBI over the matter in the last few months.
A one-time restructuring allows banks to either extend loan tenures or change payment terms or extend additional loans to ensure that the account is not classified as a non-performing asset thereby forcing banks to set aside more funds as provisioning.
Kanoria said a one-time restructuring should be offered to all borrowers and every one should be given a choice on opting it, or else banks will be flooded with bad debts once the six-month loan moratorium ends on 31 August.
“There will be a rush of non-performing loans for banks after 31 August,” Kanoria said.
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Banks reluctant to lend to NBFCs, says Kanoria
Hemant Kanoria also pointed out that the special liquidity window for NBFCs announced by the Narendra Modi government as part of the Atmanirbhar package has not helped.
The government had announced a Rs 30,000-crore special liquidity window to help NBFCs and housing finance companies (HFCs) access funds.
“I have not seen a single penny coming in through the special liquidity window announced by the government,” Kanoria said, adding that probably some of the larger NBFCs may have benefited.
Kanoria was critical of policymakers who have routed all support to NBFCs — also referred to as shadow banks — through banks.
“NBFCs are shadow banks and banks see them as competitors. Banks would like most of the NBFCs to die since then they will have less competition,” he said. Banks are risk averse and would like to take “absolutely safe decisions”, he added.
The measures announced by both the government and the RBI to help ease the cash flow of NBFCs involve banks lending to NBFCs or buying their assets or debts backed by either cheaper funds from the central bank or a government guarantee.
‘Abrupt’ state-level lockdowns hurting business
The frequent state-level lockdowns that are being announced by many states to deal with Covid-19 may not be good for economic activity, said Kanoria. “Firms cannot plan out their production facilities due to abrupt opening and closures.”
Rural demand is picking up but it will be only limited to essentials, Kanoria said, adding that many of the MSMEs may close down without government support.
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