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Market keeps on correcting itself, we should all be patient: Rashesh Shah

Along with moratorium, SMEs will need fresh funds also, says Edelweiss Chairman.

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Last Updated: Mar 27, 2020, 10.02 PM IST
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The rates have been slashed, liquidity has been injected and moratorium has been given for term loans. As the Chairman of a group which lends to SMEs, has the RBI move been better than expected or slightly on the lower side?
It is a good move. The government yesterday came out with the package and today RBI came out with this package. Investors have been waiting for the economic package because all countries in the world are fighting the virus from a health point of view and also fighting economic issues.

The three most important announcements today are the repo cut, the 1% CRR cut which is going to infuse a lot of liquidity in the banking system as well as the three-month term loan moratorium as that will give a lot of people some leeway. The term loan moratorium is very important because there a fear that bank NPAs will go up. All those will get mitigated and also the credit history of borrowers will not get spoilt.

My real fear was if something like this is not there, then the borrower’s credit is free. If it is impaired, it takes a long time to repair. So, this will be good for the borrowers, the individuals and the SMEs and others so that their credit history is not impacted as a result of this.

The two more important things I would look for is a) banks disbursing a lot more fresh loans aggressively because liquidity needs to come back into the system. The way our economy works, when RBI releases the liquidity, it goes into the banking system and from there, it flows downward. So, both interest rate and liquidity transmissions are very important.

Even if you tell an SME customer that he need not pay his EMIs for the next three months, he still has to pay the salaries and other overheads to his employees. For all that, he will need cash flow. Giving fresh disbursements as quickly as possible is going to be very important in the next few months. Also the MCLRs have to come down so that this interest rate transmission also happens very quickly.

All the boxes from your own wish list must have been ticked. Specifically, how will you bring down the cost of borrowing as an NBFC working with banks? Would you transmit that and how long will this entire procedure take?
All banks in the next few days will start cutting MCLR and as that comes down, the rates will come down. I do expect that for most borrowers, banks will at least pass on at least 50 bps and hopefully entire 75 bps. As the cost of borrowing comes down, the quantum of borrowing should go up. I would say by next week or so, we should start seeing the rates starting to come down and we all will pass it on. We will have to make sure that businesses do not get impaired permanently because of the disruption in cash flow. Just allowing a three-month EMI moratorium and structuring it in a way so that even after three months, the businesses have the ability to pay the instalments.

What about the SMEs, the midsized businesses which will avail this moratorium and deferment of interest also going forward? This comes as a breather for sure but you must have already already been approached by a lot of similar businesses you work with. Do you think the time period which the RBI has given is enough or do you think they may require some more help going forward?
Three months is good enough because currently everybody is working on the hypothesis that the economy will return to normalcy in the next three months. Of course, the next four weeks are very critical because if we can stem the spread of the virus, then the human cost of this can be curtailed and the healthcare pressure can come down.

Even with demonetisation, there were four-five weeks of disruption. The current hypothesis is that in three months things will return to normalcy. We are all keeping our fingers crossed. Given that there are lot of assumptions about India’s ability to recover quickly, if that happens then three months is good enough. But as I said, not just three months’ moratorium, businesses will need additional cash. I hope that banks step up disbursements. If you are a retail store or a hotel or an airline, you have no income coming on but your employees are still there and you still have to pay them salaries. You will need cash flow for that.

What has happened to your stock price? It is a sound business and surely is going through a cyclical downturn. But after almost Rs 1,000 crore net profit, it is coming down pretty sharply. What are your thoughts on the exit by some big shareholders?
When we do the annual reporting of the shareholders, we will file the shareholding report that will clearly give a view on who the shareholders are. It is always inappropriate to comment on stock prices because I have seen over the last 30 years that stocks rise and fall. Earnings as well as growth cycles are down now. We as an NBFC were always growing at 25-30%. That growth rate has come down, earnings have come down especially on the credit business. The advisory business or asset management, wealth management continues to grow well but overall, earnings for the firm have come down, as have growth rates.

There has been a lot of upheaval over the last 18 months. The cost of funding, liquidity all have impacted earnings. The market keeps on correcting itself. We should all be patient. In the long term, the stock prices have always correlated to earnings and the growth trajectory, but in the long term. In the short term, it can be any buying, selling or liquidity related issues that impact a company stock.

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