Amid the devastating second wave of the coronavirus pandemic, life and livelihood are at stake yet again. It is feared that the green shoots like inflation going down to 4.3% in April 2021 from 5.52% in March 2021 and rise in Index of Industrial Production (IIP) to 22.4% in March 2021 due to favourable base may not sustain. It is expected that the growth in industrial production will moderate in the coming months as the base effect fades.
Looking to its potential damage to the economy, the outlook for 2021-22 is revised downwards. S&P Global Ratings cut India’s GDP growth forecast to 9.8% from 11% due to the second wave that can derail the “promising” recovery in the economy. Moody’s too has revised its forecast from 13.7% to 9.3%. Crisil, which estimated India to grow at 11%, has brought down the estimate to 9.8-8.2%. But these fears can be tackled to continue uptrends in the economy with inclusive participation of stakeholders, the headwinds of which are evident.
Despite the potential impact of local lockdowns and immobility on the production and supply chain management, fiscal 2021-22 is expected to be better than 2020-21. Confidence is building up with the vaccination campaign gaining traction. Entry of multiple imported vaccines can open up wider availability. The corporate sector and other enterprises are actively engaged in not only vaccinating their employees but also rendering assistance in caring the infected.
The financial position of the corporate sector also sounds better to deal with the stresses. It can be reflected from the data on stressed bank loans. Only 31% of corporate loans came under loan moratorium during 2020-21 compared with the average of 41% across all borrowers. 69% of MSME borrowers opted for moratorium, indicating higher stress. Analysts indicate that about 2% of bank loans are under restructuring, well below the expected levels of 5-6%. Better resilience is seemingly building up to cope with the stress.
In continuation of relief measures already unveiled by it during Covid 1.0, the Reserve Bank of India added selective non-conventional innovative measures on May 5 to fight Covid 2.0. Liquidity window of Rs 50,000 crore at repo rate is made available for three years to banks to on-lend to the healthcare sector with a focus on the flow of credit to vaccine manufacturers. The SBI has already committed Rs 10,000 crore of loans to the health sector and many banks are expected to use this window to accelerate the flow of funds.
In order to protect small enterprises, the RBI introduced yet another special liquidity support — the special long-term repo operations (SLTRO) — and provided Rs 10,000 crore of liquidity at repo rate for a period up to three years to small finance banks. A loan restructuring 2.0 is permitted to alleviate the sufferings of small businesses, microfinance beneficiaries and MSMEs. Banks can consider restructuring of loans up to Rs 25 crore to provide latitude to borrowers to come out of the crisis. Banks will also benefit by preventing slippage of assets equal to the new restructured loan portfolio with relief from the corresponding provisioning burden.
Despite the availability of plenty of liquidity in the last one year, bank credit growth continued to be sluggish at 5.54% during 2020-21 as against 6.55% in 2019-20. As a result, banks are holding excess investments of 11.4% in statutory liquidity ratio (SLR) beyond the minimum needed as of February 26, 2021, as against 8.2% in March 2020.
The state of credit growth is low despite the RBI permitting banks to exclude fresh loans of up to Rs 25 lakh per borrower granted to new MSMEs while computing their net demand and time liabilities (NDTL) for the purpose of maintaining cash reserve ratio (CRR) till October 31, 2021, that stands now extended to December 31, 2021. In short, the low credit offtake is due to twin factors – low demand from entrepreneurs and low propensity of banks to lend.
With the proposed National Asset Reconstruction Company (NARC) to be made functional soon, public sector banks can be freed from the burden of a considerable portion of their bad loans. With clean balance sheet, ample liquidity and a better ecosystem, banks can concentrate on fresh lending to help entrepreneurs tackle the current crisis and improve their productivity.
Notwithstanding the inclusive policy support, the pandemic may prolong. Gearing up to coexist with the looming threat of the virus in its changing form is essential. Balancing lives and livelihood will need reengineering the way of living and continuing with the activities to ensure that the economy is not allowed to impair further. While continuing to impart education on preventing the spread of the virus, creating safe bubbles within the working space by quick testing, segregating sick and healthy will be necessary. It is not possible to perpetually fear and abstain from livelihood activities. It is time to overcome and work in collaboration with each other to create safe working zones.
The private sector and local administration should involve in greater measure to ensure how economic activities can be continued while remaining safe following Covid protocols, moving away from the belief to abstain people from work. Collective, conscious and constructive efforts will be needed to protect people to keep the economy moving. Learning from the experience of Covid 1.0 and Covid.2.0, we must now move to take it head-on with all our might to normalise life with vaccine protection on one side and self-care on the other. Firm commitment of people to check the spread of the virus should make the economy stronger from 2021-22 onwards, some such early signs are evident.
(The author is former General Manager – Strategic Planning, Bank of Baroda. Views are personal)
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