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Liquidity problem should not turn into a solvency issue: Abhimanyu Munjal

Post moratorium, without a restructuring, there will be a big spike in delinquencies across banks and NBFCs, says Joint MD & CEO, Hero FinCorp.

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Last Updated: Apr 08, 2020, 04.06 PM IST
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Abhimanyu Munjal-1200
How has the lockdown affected your business?
The lockdown is going to create a lot of new norms. We are all working from home and probably working much longer hours and more efficiently than before. So, the lockdown is going to have a lot of positives in terms of reducing a lot of unnecessary opex across the NBFC industry. The impact will be felt across all industries in the economy.

The estimated GDP loss due to the lockdown is between Rs 4 lakh crores and Rs 8 lakh crore. It is a humongous sum. So it is going to be painful, especially for lenders who have lent to the affected segments. Liquidity will be tight, receivables are going to be extended. Overall, times are brutal and it is that way for most NBFCs in the country.

The Reserve Bank of India has given a moratorium that does not apply to all. Do you think the true picture on NPAs and other things will emerge only after three months when you will be able to figure out who has got cash, who can’t pay and who will struggle to pay?
I was talking to Mr Madhusudan Kela. One of the things he mentioned is very true in terms of leveraged businesses. All leveraged businesses are going to be impacted. The moratorium is there, it is not a waiver, it is a deferral and I hope the industry is being responsible by applying the moratorium to people who deserve it and not to hide any of the issues that you are mentioning.

I feel the life after moratorium is going to be what we need to watch out for. The moratorium is for three months, the lockdown till 14th April will lead to a GDP loss of Rs 4-8 lakh crore. EBITDA generation for most companies and SMEs will be stressed. After the moratorium is over, there should be a restructuring window for impacted industries like airlines, travel, tourism, auto etc so that we can match the cash flows of those industries because they are not coming to normalcy right after the moratorium.

If that does not happen, there will be a big spike in delinquencies across banks and NBFCs.

What is Hero FinCorp doing to play their part in terms of philanthropy and contribution and helping out the PM Care Fund?
As a group, we are socially responsible corporate citizens. We have announced a contribution of Rs 100 crore, out of which Rs 50 crore goes into the PM Care Fund. The flagship of the group is Hero MotoCorp. There are Hero FinCorp, Future Energies, Munjal Auto Industries among others and the ML Munjal University which is led by Hero Group. We have associate companies of Hero Enterprise and AG Industries.

So out of the Rs 50 crore which goes into the PM Care Fund, a substantial amount has been contributed by Hero FinCorp. Additionally, FinCorp is planning to create a Covid-19 product whereby Rs 200-300 crore dedicated amount will be dispersed among SMEs where there are working capital gaps rising from Covid-19 impact. It will also be give to retail consumers who have problems in getting their daily needs met. We are looking at that product and hopefully we should have that out very soon to support our customers.

What do you think the RBI can do at this juncture to be able to release the stress within the NBFC sector?
The TLTRO (targeted longer-term refinancing operations) is a great step. We should have additional Rs 2-3 lakh crore in the TLTRO. Right now, the dedicated amount is only Rs 1 lakh core and out of that, 50% is for primary and 50% is for secondary. I feel that we need to get another Rs 2-3 lakh crore and within that, some funds should be dedicated for NBFCs and HFCs.

The leveraged businesses are going to be very hard hit. There will be talk of survival of the leveraged businesses. In terms of the economy, auto industries, tourism, hospitality etc are already hit. It is going to take time for them to come back to normalcy.

-Abhimanyu Munjal


The moratorium that we are giving to our end customers, does not apply to the debt capital market, to mutual funds and to insurance companies. About 30% of NBFCs’ liabilities come from those sources. There would be a cash flow issue going forward and hence it is very important that a TLTRO gets enhanced, a part of that gets dedicated to NBFCs and HFCs so that we can take care of the bond and the debt capital market obligations.

Also, there needs to be some kind of alignment in terms of regulators -- the RBI, Sebi and IRDA and unification in few of these stocks. The US Fed has started buying corporate bonds. It may be a good idea for RBI to start buying some of these bonds and give a direct liquidity line to NBFCs and HFCs. Also, for lenders to SMEs, a credit guarantee from the government could actually mitigate any EBITDA losses that the SME may have going forward.

For the overall economy to recover on a more broad-based level, the government will have to intervene. Of course, D-Street has been clamouring for a second stimulus package. What do you think the government can do at this juncture?
I hope the package comes sooner than later. I believe a package is required which would be equivalent to 2-3% of GDP and it should focus on unemployment and boosting demand, making sure that there is enough consumption capability post the lockdown with every household.

Where do you think the real crisis is going to happen? Since your business is also about understanding the way interest rates and demand are going to move, the way the rural economy is going to move, which end of the economy do you think is going to be the hardest hit?
The leveraged businesses are going to be very hard hit. There will be talk of survival of the leveraged businesses. In terms of the economy, auto industries, tourism, hospitality etc are already hit. It is going to take time for them to come back to normalcy.

In order to support them we need to have a very strong fiscal and a monetary package, so that there is enough liquidity. If you see, worldwide, no lending business has gone down because of asset problems. They have gone down because of liability problems. This is the time that we need to step up and ensure that there is enough liquidity in the system and it is being transmitted to the intermediaries or to the end consumers so that this liquidity problem does not turn into a solvency issue.

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