23 March, 2020 by Rajesh Narain Gupta
Since its outbreak in China, the Coronavirus (Covid-19) has rapidly spread the world over and assumed the size and scale of a global pandemic. Rather than being seen as a worldwide health crisis, it has assumed the proportions of a global economic calamity having the potential to adversely impact the growth trajectories of emerging economies like India.
Considering the debilitating impact of the Coronavirus on Indian trade and business sentiment, global rating agency Moody’s has cut India’s growth prospect for 2020 to 5.3%. The wider impact of the present crisis is already being felt on India’s service sector which provides employment to a large number of people. Sectors like retail trade, hospitality, real estate, travel and tourism, airlines and entertainment are bracing for a huge hit from the Covid-19 impact. Indian equity markets have been witnessing a virtual bloodbath as key benchmark indices are witnessing a freefall taking cues from global financial markets. As FPIs dump Indian stocks, there is a large-scale erosion of investor wealth and dampening of sentiment in the Indian economy. People from all walks of life shall be directly and indirectly impacted financially.
The Covid-19 crisis could not have come at a worse time for the Indian BFSI (Banking and Financial Services Industry) sector. With the balance sheets of banks saddled with NPAs, the government is hard-pressed to revive the financial health of Public Sector Banks (PSBs) and inspire confidence in the performance of Private Sector Banks. Also with a general decline in economic activity and contraction in consumer spending, we are likely to witness a long phase of coronavirus-induced recession, going ahead. These are economically challenging times for all industries, especially SMEs and SSMEs which may see their bottom lines severely impacted.
Already with manufacturing and industrial activity in the country coming to a standstill under lockdown conditions, corporate India may have to face a serious liquidity crunch. Several key trade and industry bodies have already made representations to the government seeking a moratorium on rescheduling loan repayments and GST payment waivers. They have expressed their helplessness to enforce contract considerations and service their debt obligations citing reasons beyond their control. Trade and corporate entities that are not financially stressed may also bring on the pretence of being under stress and seek a rescheduling of their loan commitments by invoking the doctrine of the Act of God. These may pose legal challenges in recovering pending dues from debtors and may add to the already existing woes of financial institutions.
With the Indian economy sailing in troubled waters, these are testing times for the economy which will test the resilience and conscience of all concerned stakeholders. Though it is easier said than done, it is extremely important that borrowers exhibit transparency and integrity in honouring their debt repayment commitments to their creditors who have extended them financial lifelines in their hours of need. They should not engage in fraud and adopt unfair trade practices to hoodwink their lenders. Potential defaulters will need to understand that if the liquidity positions of lending institutions are compromised, availability of easy working capital will be adversely restricted leading to yet another round of industry shutdowns and unemployment.
Presently, it is absolutely difficult to predict how the long-term economic impact of the dreaded Covid-19 will play out. In such unfortunate times, we need to be united and behave like statesmen.
Bankers and other lending institutions also need to come forward to consider borrower’s stress on pragmatic friends and cannot be fair-weather friends. Lenders need to help those borrowers who are truly stressed by extending affordable working capital to them. It is essential to note here that as we go forward, the biggest challenge will be to revive the economy and put it back on the path to recovery.