Eco can't be blocked for long, I have to live with Covid: SBI president

Rajnish Kumar, president of the country's largest lender (), is clear that economic activity must resume. He also believes that it is the pace of recovery that will determine the damage to the economy and bank books. He points out that any loss to the GDP It will be distributed among the government, companies and individuals, and therefore will impact banks. In an interview with TOI, Kumar talks about what is required. Edited excerpts:

How much of the loans is it likely to become ()?

Our scenario analysis depends on how quickly the is lifted and what is the pace of recovery thereafter. If there is a GDP loss, it will get distributed among the government, corporates and individuals. Corporate profits are down. Ultimately, this gets reflected in the balance sheet of banks. How much loans go bad depends on the pace of recovery.

What is the state of the economy? Is it worse than the worst case in it?

The financial stability report has a baseline scenario, medium severity, and a high severity scenario. I think we are between the base case and the medium severity scenario. The position will be clearer once we get out of the block. One thing that is being clarified from the pronouncement of who and other agencies is that the world will have to learn to live with , and economic activity cannot be kept under lockdown for a long period. We have to find ways to ensure that the virus does not spread and the economic activity resumes. While a lot of activity is happening in rural areas, it is unfortunately the cities — that contribute the most to GDP — that are badly impacted. Ultimately, for economic activity to come back, it is important for consumption points to become operational.

Will the Rs 20-lakh-crore package help you?

Thursday's announcement was around MSMEs (micro, small and medium-sized companies), NBFC (non-bank financial companies) and energy sectors. The government has already provided liquidity and the government has provided risk capital by providing guarantees to NBFCs and MSMEs. And state governments are likely to be guaranteeing the obligations of power distribution companies. Liquidity support, along with collateral, will help companies and control delinquent loans in this sector. The money will be used by MSMEs for working capital, including the purchase of raw materials. It all depends on how fast we get out of the block.

What other measures do you think are necessary?

I'm pretty sure the next set of announcements will be about increasing investment. I think they will be on the verge of relaxing production laws, establishing manufacturing facilities, land availability and labor laws, important issues. So, the factors of factory production and productivity, the next set of reforms should be around that. This is also a dilemma for the government, whether to put more money in productive sectors such as infrastructure or to put more in the hands of the people.

What is needed to protect the financial system?

Banks and intermediaries must be proactive in managing the quality of assets, particularly in the corporate book. There is some help from the regulator and the government. The 90-day moratorium and government support for NBFC, MSMEs, and energy sectors will improve cash flows and reduce delinquencies. In the electricity sector, bank exposure, regarding the state and the Center, is safe. As far as independent producers are concerned, the guarantee will help.

The three-month moratorium on borrowers will end in two weeks, should it be extended?

It is difficult to say. This is a call that the RBI has to take. It would all depend on how the lock exit strategy works and how fast the system returns to normal. Immediate restructuring may not be required. It will be a specific sector and case by case. An image will emerge in the second quarter.

Would a ‘help lenders deal with NPAs after closing?

The books of the banks have been cleaned since most of the loans have been fully covered. There are certain advantages described in the concept paper prepared at IBA (Association of Indian Banks). It's about resolution. There are many cases in NCLT (National Company Law Tribunal). Decision making will be centralized and perhaps faster and more professional. I think more discussion is required at the RBI and government level.

Banks have been parking almost Rs 8 lakh crore with the RBI. When will the loans start?

There is excess liquidity in the system. In April 2020, we earned Rs 1.25 lakh crore as deposits compared to Rs 14,000 crore in April 2019. A large amount of money came from central and state governments, and our increase in market share shows that there has been a flight towards safety. Generally, there is negative growth in credit in April of each year and since we have a surplus, there is no choice but to park with the RBI. Demand can only come when economic activity picks up.

What can be done to stimulate demand?

Ultimately, it is investment that leads to employment. And when there is work, the demand will come. Other than that, putting money in the hands of consumers also leads to demand. The 40 billion rupees transferred to JDY accounts, in that sense, are consumer money. But at the same time, unemployment has increased, which will suppress demand. The investment and consumption cycle needs to be revived and the government has to strike a balance between consumer spending and infrastructure spending.

Do you continue financing NBFC? Has a moratorium been extended to them?

We are helping NBFCS in every way. We disbursed funds in March. The government guarantee will guarantee the flow of credit to NBFCs, especially those who are not highly rated. We have been providing a case-by-case moratorium.

Bank staff have been under pressure while working during the shutdown. Unlike other companies, the option to work from home is not available to many ...

Strategies are being developed on what kinds of roles can be done (remotely) after taking into account system values. We are trying to make sure that a certain percentage of the workforce has the flexibility to work from anywhere. The work continues and we will have a plan in about a month.