Badly hit sectors need a long-term relief package: Manish Kothari4 min read . Updated: 22 Jun 2020, 10:06 PM IST
- MSMEs can work towards improving break-even levels by paring or renegotiating all types of costs, including raw materials
The covid-19 lockdown, which has brought the economy to a near-halt, hit small businesses the hardest. With limited means of absorbing the shock, they have pinned their hopes on the government’s ₹3 trillion guaranteed loan scheme. The loan scheme is aimed at helping small businesses tide over the crisis that led to a drastic drop in sales in April, by buying them time till cashflows pick up. In the latest interview of Mint’s Pivot or Perish series, Manish Kothari, president and business head - corporate banking (large corporates, MNC, SME & new age companies), Kotak Mahindra Bank Ltd, discusses how the sector could pivot to these challenges and emerge stronger. Edited excerpts:
How can India’s micro, small and medium enterprises (MSME) sector pivot to convert the current crisis into an opportunity?
A crisis always presents opportunities to look at things that otherwise were not visible or ignored in good times.
MSMEs can work towards improving break-even levels by paring or renegotiating all types of costs, including raw material, rentals, people, etc.
They could also evaluate moving out of not-so-profitable segments, products and geographies, while at the same time evaluating completely new opportunities in terms of product lines or markets to enter and look to sharpen processes through adoption of technology.
In the process, these MSMEs could become significantly more efficient and competitive than before.
On the manufacturing side, which sectors among MSMEs, according to you, are best placed to emerge stronger from the crisis with the government’s recent measures in place?
Companies that are in the fast-moving consumer goods (FMCG), food processing, pharmaceuticals, chemicals, medical or healthcare accessories, agricultural inputs, telecommunications, whether directly or indirectly, are sectors that are recording strong and sustained consumer spending across customer segments.
How soon do you think we can see the results of the ₹3 trillion package announced for the MSME sector? Do you see any major challenges in this regard?
The ₹3 trillion package has been announced to support the MSME sector to tide over the financial burden (losses or cashflow mismatches) that a company may be going through from April onwards when it had almost nil sales, till the time capacity utilization picks up to a reasonable level for the business to start generating adequate cashflows to become self-sufficient.
The disbursements are expected to take place beginning June and should get done over the next few months, by when there is hope of sales crossing break-even levels in most sectors and businesses becoming more self-sufficient.
I do not see a major challenge in the scheme as of now—just that there is a minor deterrent in the additional cost of stamp duty that companies in some states may have to bear for the creation of a second charge for this loan (on the present security).
What measures do you think banks will have to put in place to prevent the expected deterioration in asset quality of the sector owing to covid-19?
Banks will have to get far more involved in monitoring the level of activity with their customers, viz. sales, collections, movement of inventory and debtors etc., to understand the cashflow challenges that the businesses in this sector are facing and the promoters’ plan to alleviate the same, including the role that they expect the banks to play.
What can be done to assuage these concerns while ensuring that the financial system remains healthy in the post-covid world?
The ₹3 trillion package announced by the government, along with the relief measures on debt through the loan moratorium announced by the Reserve Bank of India (RBI), are some of the steps already undertaken to address exactly these concerns.
However, there may be a need for the government and/or the RBI to come up with a relief package for providing long-term support—specifically to some of the deeply impacted sectors like hotels, auto, travel and tourism, real estate etc., which are expected to take longer to revert to their pre-covid normal.
The finance minister recently said that private banks should also take an active part in the guaranteed loan programme. What has been Kotak Mahindra Bank’s outreach on this front?
We have already rolled out the scheme to our eligible customers and there are customer confirmations that we have received for taking this facility, which are currently being processed at our end. Disbursements under the scheme have also begun.
Do you see demand for credit from small businesses picking up or are these businesses willing to wait a few more months before taking additional loans?
The sales for most MSMEs dropped sharply in April and the recovery, while it has begun, is gradual. Hence, most of these businesses had reduced their credit utilization levels with banks in line with their sales.
As of now, I expect utilization of the existing limits itself to pick up steadily, as sales start to improve.
However, additional loans for growth is unlikely in the near term.