Fortunately, like everybody else, we started work from home a couple of weeks ago and made it very technology-enabled. So a large part of our colleagues are all working from home now. The markets are open, so the trading team and some of the critical operations related to that still have to be in the office. But a large part of our other colleagues are being able to work from home. Technology is a big enabler, and it has made things a lot more efficient. The first few days was not easy, but since last week it is almost like normal office work and we are doing meetings and video calls and all that. I think it was a good time to test your business continuity planning, so we kicked off the BCP. We have also divided the critical teams into A, B and C and made sure that the A team is in office, the B team is at a remote location and C team is working from home. Thus, we have enough redundancy for critical operations. What is important is the while activity comes down, critical operations have to go on. One of the other things we have done is, we have pre-paid our employees for March, basically pre-paid the payroll which usually happens on 28th. We are expedited it so that people have some leeway in managing their cash flow. Because how cash flow gets managed for individuals, for businesses and for organizations is going to be one of the biggest challenges.
Where do you stand on whether markets should remain open or not? We all know how difficult back operations guys are finding it. Some states have enforced complete lockdown. Volumes are low. Several markets across the world have taken the decision of electronic-only trade. But our regulators and exchanges have so far decided to continue the operations. Where do you stand on this particular issue?
You have to keep the markets open, because closing the markets has a lot more other consequences, and it can increase volatility. One of the basic promise of the market is that whenever you are going to buy and sell at a price, liquidity should be available. So first thing is markets have to be open. One thing we can do is try and keep markets open for maybe one hour every day, so that there is not a lot of load and only essential buying and selling happens. Because this is not the time you want people to trade and speculate and do other things. I think F&O and the equity derivative segments can be curtailed and market hours can be curtailed, so that the load on the system is not there.
At the same time you do have a price print every day that the markets are open. If it goes on for another three-four weeks, then we should have a longer game plan on how to reduce the burden on the system as a whole.
The government is taking a lot of steps. Some of them are having consultations with the industry. You must have also interacted with the various sections of the government. How are you looking at the way our system is tackling this issue?
I think India being a large country, very dense and with a democratic system and all, I am positive about the actions that the governments – state governments and central government – have taken. They have been very proactive. Some of the European governments were going slow, because they were worried about the economic impact. One of the good things the governments have done is not worry too much about the short-term economic impact, and have closed down borders, enforced curfews and all. So that is a good thing, because this is the only option you have to curtail this. This is a big humanitarian crisis, and we have to make sure that we first tackle the health crisis. It will obviously result in some economic pain, and that is inevitable all over the world. Recession and all is becoming more and more reality globally.
Once you curb the health crisis, then you can work on the economic crisis. I think the government has been very focused on how to manage the health issue and stop the spread of the virus. I do think the government, the Reserve Bank of India and others will come out with a package even to alleviate the economic crisis, because there is no point in just alleviating the health crisis, if the economic crisis goes on for a long term. Because that can result in unemployment, income loss and other pain.
I think it will follow, and I do think the government is working on it. They have been talking to a lot of people and they are trying to work out which areas, which sectors to address and what kind of stimulus or intervention to do. I do think it will come, because we will have to alleviate the economic pain also.
We understand that all these preparations are going on right now, and we are expecting that to cushion the blow to the economy. But where do you stand right now on your assessment of how bad could things get? A lot of your clients in the lending business are directly getting impacted? How are you assessing the damage so far, and what do you think can will help forbearance by lenders? What is your analysis of all that?
The first and foremost impact is going to be on cash flows and liquidity. Because in last 8-10 days, we talked to a lot of our SME customers, everybody’s cash flows have been coming down. So that itself is the first area. We have to infuse liquidity, and make sure the cash flow cycle starts out, because once the cash flow cycle stops, it has a cascading effect on everybody else. After the cash flow issue is managed, we have to go towards NPAs and forbearance and all. Because, a lot of technical default can happen as people may not able to pay either because of liquidity or because of the cash flow crunch. We should have some forbearance, especially for a lot of businesses and all who need more time to play.
So I think they key requirements are NPA forbearance, ensuring cash flow, liquidity infusion and making sure that the cash flow cycle is not stalled at all. Thirdly, I think we need to ease compliance requirement, because this is also the end of the financial year. Thus, we need to extend the compliance requirements and give a lot more breathing space, because everybody is working on multiple fronts. Businesses are busy planning things, taking care of employees, taking care of customers . So, some kind of compliance forbearance and in filing things will also come. I think these are the three areas where I would expect help: on liquidity, on NPAs and on compliance.
The fear in the market is that now even retail borrowers will start coming under pressure, and possible defaults may happen. What are your thoughts on that section of the borrowers? Also on the real estate side, do you think there could be a lot more pain because they are completely starved of cash now and further defaults will start coming in on that side?
On the first one, I think we have to be very careful on the retail side. The idea is not to spread panic, but as I said cash flows will get crunched. We do expect some intervention and the measures; going by what we have seen during other events. If it lasts for three-four weeks, it can be managed, because people have enough cushion, enough ability to manoeuvre and manage a cash flow disruption for three-four weeks. If it goes longer than that, then we will need a lot more other active interventions from the government and from RBI. That will be a function of what the government and RBI do to alleviate the cash flow and keep the cash flow going.
On the real estate side, if they have already gone through a huge stress test in last three years and there has been a big slowdown there. It is the same thing: if it lasts for next three-four weeks, there may be a little bit of slowdown, but if it goes on longer than that, then we will have to make sure that the projects keep going on and houses get built.
The good news is that people will not stop buying homes. In fact, if people have to stay at home more then they people will need more homes. So I do think home buying will not get impacted in the long term, especially if interest rates come down and the government and RBI do a big push to get people to spend.
Because demand contraction is what you do not want after this. As I said in the short term we have to manage liquidity, we have to manage NPA forbearance, we have to manage compliance requirement, but in the medium term, governments will have to stimulate the economy. We will have to make sure demand and consumption slowdown do not happen. I do hope it will not happen because India is still a growing country and we have a lot of young population and urbanisation and all is going on. If you look at China and other places, four, five, six weeks after this kind of measures, things have started to come back to some sort of normalcy. If you look at Korea, if you look at Singapore, a lot of things are coming back to normal. So given the strong measure our government has taken, I do feel by end of April we should see some normalcy come back.