Whatever demand is there, is primarily from small businesses which are finding it difficult to pay staff salaries and meet fixed costs. “It is the small businesses, like a supplier to large manufacturers, that needs the covid-19 emergecy credit lines. The working capital cycle of these small borrowers have been hit because of payment delays by their big customers during the lockdown," said the first banker quote above.
But, these businesses are finding it difficult to access institutional credit with most banks turning risk averse and are content keeping money with the Reserve Bank of India (RBI) even at 3.75%
Bigger borrowers, these bankers cited above said, are still able to sustain with their resources and therefore lenders have not seen much demand for credit from them.
By the end of March, state-run banks like State Bank of India (SBI), Union Bank of India and Bank of Baroda (BoB) had put in place a scheme for covid-19 emergency credit lines. These were mostly limited to 10% of the borrowers’ fund-based working capital limit.
Credit growth has been subdued for quite sometime now and between 13 March and 10 April, non-food credit grew by 2%. However, for the full year of FY20, credit growth stood at 7.6% and was led by large corporates and non-banking financial companies (NBFCs). This was before the onset of the covid-19 lockdown and closure of factories that led to credit demand from large businesses dropping.
“Given that the growth outlook in this lockdown scenario remains challenging, focus is on asset quality, liquidity and capital adequacy," said a note by Centrum Institutional Research on 5 May.
However, with pressure from the government increasing, banks are pushing customers to send emails and get the 10% extra credit line approved, even if they do not plan to use it, said the second banker quoted above.
“We have to show that the bank has sanctioned credit in the form of covid-19 credit lines. So, we are calling up borrowers and trying to convince them to avail of this credit line. It does not necessarily mean they have to use it and an emailed confirmation is sufficient to extend this line. The bank does not need to portray utilisation of the funds, a mere disbursement is satisfactory," said the second banker.
Meanwhile, RBI’s plan to dissuade lenders from using the reverse repo window to park excess liquidity has not made any headway so far. On the contrary , banks have increased their participation in the reverse repo auctions, depositing even more money with the central bank. The reverse repo is the rate at which RBI borrows from commercial banks and is an important monetary policy tool aimed at controlling system liquidity.
The first reverse repo cut happened on 27 March and the next on 17 April. However, despite these steep cuts, banks have parked ₹8.53 trillion on 5 May in the fixed rate reverse repo (at an interest rate of 3.75%), compared with ₹7.09 trillion on 17 April (3.75%) and ₹4.43 trillion on 27 March at 4%.
“While the intent is to push banks to pass on the excess liquidity to businesses, banks believe that liquidity is not the problem. It is a mix of risk averseness and also the lack of a sizable credit demand. Most borrowers are looking for a moratorium to tide over the crisis, instead of fresh indebtedness," said the second banker.
Speaking to Mint over the phone, Prashant Kumar, chief executive of Yes Bank said on Thursday that when there is no economic activity, there cannot be demand for credit and if there is demand, it would only be for consumption.
“Demand from economic activity will happen only when there is some activity on the ground. However, I think that once the lockdown is lifted, people would be looking for credit," said Kumar.
According to regulatory filings by the bank, 15-25% of its borrowers, belonging to corporate, small businesses and retail segments, have opted for the three-month moratorium. The number is 35-45% in terms of the value of these loans. Yes Bank’s borrowers who were eligible for the moratorium had a total outstanding of ₹14,956 crore as on 31 March.
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