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“In these uncertain situations, all businesses will need more working capital funds, which the banking system should provide, but prudence would also, at the same time, demand that over-leveraging even in these circumstances is avoidable as the money has to be repaid, and there is also an interest cost,” Kumar said while speaking on the topic ‘Rescuing the MSME sector post-COVID’.
He, however, said that if having more working capital at this difficult time can help one bring back their business to normal within the next six months to one year, then they should go for it.
Kumar warned that for businesses with fundamental flaws or inherent weakness, short-term borrowing is not advisable at this juncture.
“Then it is advisable to go for a deeper restructuring because if people borrow for short term and are unable to repay on time, it will spoil their credit history,” he said.
He said banks are reassessing the working capital requirements for businesses on a case-to-case basis.
Talking about providing liquidity support to non-banking financial companies (NBFCs), Kumar said the Reserve Bank of India (RBI) recently announced various measures such as targeted long-term repo operations (TLTRO 2.0) to help these shadow banking players meet their funding needs.
“We are reaching out to them (NBFCs) and requesting them to give their cash budget. Based on that, whatever is their short-term liquidity requirement, we will support them,” he said.
The RBI had announced to conduct Rs 50,000 crore of TLTRO 2.0 in various tranches.
The funds availed under TLTRO 2.0 will have to be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at least 50 per cent of the total amount availed going to small and mid-sized NBFCs and MFIs.
Kumar said banks can support NBFCs or MFIs by helping to issue bonds, which can be funded through TLTRO.
“If MFIs are not eligible for bonds because they do not have the required investment grade ratings, then we may be comfortable giving loans to them on the basis of their credit history,” he said.
On the RBI’s three-month moratorium for NBFCs, he said, “I think the glamour around the across-the-board moratorium for the financial intermediaries has to be properly understood.”
“We know that there is an impact on their (NBFCs) collections but there is an impact on their outflows as the disbursement is not as high as it used to be,” Kumar said.
He said his bank has extended the repayment date for MSMEs who have opted for a one-time settlement (OTS) scheme to June 30, 2020, from March 31, 2020.
According to Kumar, the tourism sector has been affected the most and the 90-day loan repayment moratorium and giving 10 per cent working capital limit may not be sufficient for the players in the segment.
“For the tourism industry, the only way would be to restructure the loan,” he said.
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