We may not need more stimulus, says Kamath

  • 11 months ago
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Mumbai: Veteran banker K V Kamath has drawn up a framework to allow banks to give relief to corporates hit by Covid-19. According to him, unlike the West where corporates can only downsize to improve finances, Indian companies have the opportunity for both efficiency gains and medium-term growth.
In the West, there has been a lot of downsizing by companies to improve finances. Will that happen here?
The West cannot do growth because they are growing at around 2%. In India, the new normal provides you the opportunity to do productivity increase as well as growth. Although growth drivers are muted now, there is definitely an opportunity to grow for the next 25 years.
Has the size of problematic corporate loans been quantified?
What we first looked at is loans that meet the test of qualifying — not being overdue for more than 30 days as on March 1. This number is around Rs 48 lakh crore. Of the 26 sectors that we identified, the loan amount comes to Rs 29 lakh crore. We then did a deep dive, speaking to banks and rating agencies to obtain sector-wise numbers for the last two quarters. Interestingly, they correspond to the percentage drop in GDP, and across sectors we are seeing a 10-25% drop in top line. That’s how we arrived at the Covid-impact number.
How much will be the size of the loans that will come up for restructuring?
At this stage, we do not have a call on that. The borrower and lender need to talk on this. Most companies are back to 80-90% capacity utilisation, and the supply chains and distribution systems are working. My assessment is not as dire as it was earlier.
The ratios are more compared to what banks ask. Does this pose a risk for the future?
Debt to equity ratio for corporates used to be 3.8:1 historically, which improved to 1.8:1 around 2010. Corporates have found the benefit of using equity. Even within the relaxed ratios, there are checks and balances.
Is there a need for more stimulus?
When I first saw what was happening after the first lockdown, the question was: Is the stimulus enough? If I step back and look, the stimulus seems to have worked. Now comes the RBI’s helping hand. If the trajectory continues, we may not need any more stimulus.
The RBI has said that all lenders need to come on board for this to work. How do you get entities not regulated by the RBI?
For the scheme to work, you need the approval of 75% of lenders by value. If a company requires a helping hand and you do not have a majority, the company will move, at best, to a plan under the June 7 circular, which would be much more damaging to all lenders. I would be intrigued why any lender would not come in.

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