Coronavirus lockdown: View: Scorching summer for banks ahead amid lockdown due to Covid-19 outbreak

By Hari Hara Mishra

For bankers, the approaching summer will not only bring a steady rise in temperature, but also branches and offices of the banks will have to face a lot of heat in meeting the tough challenges, in the execution of plans and guidelines announced by regulatory and monetary authorities, in the background of a countrywide lockdown and an acceleration in spread of COVID 19 with increasing fatality.

First, the measures announced by the government. 20 crore of women Jan Dhan account holders will be credited Rs 500/ per month for next 3 months as a part of direct cash transfer by government. This money can be digitally credited to the accounts of the beneficiaries. However, at the end user level, many of these 20 crore women at the bottom of pyramid, may not be using ATM or will need assistance in withdrawals. This will pose a huge logistics challenge in times when there is a country wide lockdown and strict need of social distancing. One suggestion could be to activate the Business Correspondent (BC) network of more than 2 lakhs, who can supplement bank’s efforts while ensuring in all possible ways that they do not misuse the reliance on them. As seen from experience in past in implementation of government programmes, middlemen and vested interests try to put unreasonable pressure on operating staff at branches by playing to the galley for their own cheap popularity. Bankers must be supported by local authorities to have a free hand in discharge of their responsibilities.

Second, the COVID 19 regulatory package announced by RBI, on easing of working capital financing. This relief (recalculation of DP) is contingent on lending institutions satisfying themselves that the same is necessitated to tide over economic fallout from COVID19. It further stipulates, the relief so provided will be subject to subsequent supervisory review. While appreciating RBI’s concern that underwriting rigours are not diluted, this may add up risk aversion in bankers in implementation of the relief package.

Third, for rescheduling of payments, the accumulated accrued interest is required be recovered immediately after completion of this moratorium period (May 31, 2020). Sure, RBI has drawn from previous experience when relaxation of forbearance pushed generation of NPAs behind the carpet. However, bankers will find it extremely demanding to recover unpaid interests immediately after the period, from borrowers passing through this unprecedented crisis, and whose liquidity have been squeezed out with business shutdown. Possibly a staggered payment spread over a period could have been a better option.

Fourth, the June 7 circular of last year containing prudential framework for resolution of stressed assets mandated implementation of viable resolution plan within 180 days after review period (30 days after the occurrence of default) for large accounts above Rs 2,000 crore and lenders are required to enter into an Inter Creditor Agreement to provide for ground rules and implementation of a resolution plan. If the resolution was not implemented, an additional 20% provisioning, over and above applicable time-based provisioning, wasrequired to be made. Half of this provision could be reversed after filing application under Bankruptcy Code, and rest when the resolution process under IBC was admitted. As per RBI’s own study in Financial Stability Report December 2019, based on a survey of 13 banks, only one case was resolved under ICA with exposure of Rs 1,617 crore out of eligible cases exposure totalling Rs 96.075 crore. So, banks now may have to provide this additional provisioning in many cases, as NCLT benches have stopped taking up fresh IBC cases since the lockdown in various parts of the country, which would push down their profitability further.

(The author is an ex-banker. Views are personal)

Source Article