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Excess cash with banks averaged Rs39,700 crore ($6.2 billion) last week, compared to a peak of more than 5 trillion rupees in March, according to Bloomberg Intelligence India Banking Liquidity Index. Photo: Hemant Mishra/Mint
Excess cash with banks averaged Rs39,700 crore ($6.2 billion) last week, compared to a peak of more than 5 trillion rupees in March, according to Bloomberg Intelligence India Banking Liquidity Index. Photo: Hemant Mishra/Mint

Small firms seek big bailout plan

  • More small biz seek respite under RBI’s special loan recast window

Thousands of small and medium-sized companies in India have missed loan payments and are staring at a prolonged period of distress owing to the pandemic while the larger ones have held their ground and, in some cases, thrived, loan recast data from top lenders showed.

Micro, small and medium enterprises (MSME) make up the overwhelming majority of companies that are seeking easier loan repayment terms from banks under the Reserve Bank of India’s special restructuring window for those affected by the coronavirus pandemic, according to the data.

While the trend is along expected lines, given the severe distress faced by businesses, senior bankers said that emerging data suggests that a disproportionately large number of MSMEs have been hit by the crisis compared to large corporates, which have managed to avert an immediate cash flow crisis—as can be inferred from the negligible number of loan recast proposals from them.

Loan recast proposals in the retail segment, too, have been relatively low so far.

Bankers said they expect to complete a full review of the loan recast requests by end-December and that the current trend may change somewhat by then.

State Bank of India (SBI), the country’s largest lender, has received recast requests from 35,000 MSME borrowers. That apart, 2,600 borrowers have applied for a restructuring of their personal loans and another 4,291 home loan customers have asked for recast. However, as banks have till 31 December to agree on resolution plans, SBI expects an additional restructuring of 13,000 crore worth of loans.

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Rival public sector banks are reporting similar trends. Most of the requests received are from small businesses, two senior bankers said on condition of anonymity.

Banks are seeing more requests from businesses with outstanding loans of less than 500 crore, they said, adding that many of these firms have been severely affected by disruptions in supply chains during the lockdown.

“While large corporates are not looking to seek debt recast, companies, where our aggregate exposures are below 500 crore, are seeking relaxations. These include the extension of repayment periods and even moratorium on payments, which are currently being finalized," said one of the two bankers.

“Banks are encouraging smaller companies, mostly in the range of 100-250 crore in loan exposure but below 500 crore, to use this window provided by the central bank," said the first banker.

The second banker said small companies will need to deleverage, but debt issues in large corporates that emerged between 2014 and 2018 have largely been addressed. “The cleanup in the corporate sector has been effective. However, there could be issues in some sectors, such as infrastructure and retail, but those are sporadic. The interest rates have come down, and the abundance of liquidity in the market is helping companies raise cheaper money," said the second banker.

Soumya Kanti Ghosh, group chief economic adviser at SBI, said in a report on 11 November that MSMEs and the farm sector might continue to be under stress for some time and will require to be monitored and handheld through the crisis. India has around 63.4 million MSME units, which contribute 33.4% to the manufacturing sector and 24.6% of the services GDP, according to government data.

Small businesses have been reeling under stress for years, hit by multiple shocks, including demonetization, implementation of goods and services tax (GST) and the lockdown, Emkay Research said in a 19 November note. “We believe the Emergency Credit Line Guarantee Scheme with a one-year moratorium on principal plus a four-year repayment period, coupled with restructuring, should ease MSME stress in the near to medium term but long-term stress formation will depend on broader economic revival with no further disruption," the report said.

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