The pandemic has taken a heavy toll on SMEs, says YS Chakravarti.
The second wave of COVID impacted collections at Shriram City Union Finance, which dropped to 86 percent in May from 104 percent in March. The worst hit are micro, small and medium enterprises (MSMEs), MD & CEO YS Chakravarti told Moneycontrol.
As small businesses often face temporary cash flow problems which they soon tide over, the Reserve Bank of India (RBI) should consider changing the recognition period of a non-performing asset (NPA) to 180 days from 90 days, Chakravarti added. He spoke further about the industry segments most impacted by the second wave, his expectations on restructuring of accounts, and the inputs sent by holding company Shriram Capital on the RBI’s draft circular on NBFC regulation.
How has the second wave hit your different business segments?
The January-March quarter was pretty good. In May, we definitely saw a large impact because our collections suffered. From 104 percent in March, it came down to about 99 percent in April and to about 86 percent in May. The obvious impact is on our SME collections, which is close to 55 percent of my portfolio. The SME collections were 98 percent in April and they have come down to 80 percent in May. Given the impact seen in the country over the last two months, I would say we have done reasonably okay. Most of our customers are engaged in trade, which caters to the daily needs of the public.
Any industrial segments that are particularly hit?
We do not have much exposure to either manufacturing or hospitality, the sectors that got most impacted. That’s one reason we have done reasonably okay even in the MSME segment. We do have some exposure to the granite industry, but that has been the least affected among industrial sectors. Other than trading, down south, we have exposure to prawn culture and fish culture. These two are also doing reasonably okay. We have exposure to some units that do job work for the apparel industry in the South and to some extent, to the shoe industry in Agra. Collections were impacted in both of those segments. Our two-wheeler portfolio is doing well. Collections were about 99 percent in April and 88 percent in May. We will have to see how June pans out.
To what extent have disbursements been hit?
Our normal disbursements are around Rs 2,200-2,500 crore, which have come down to about Rs 1,750 crore in April and Rs 950 crore in May. So it has come down to about one-third (of the usual run rate).
How much of your portfolio do you expect to restructure under resolution framework 2.0?
In the first round, we did close to Rs 100 crore of restructuring. This time it looks like we may end up with a similar number. I don’t see too many customers coming for restructuring. My average ticket size is Rs 10-12 lakh. These customers are okay and we are also okay if they miss a couple of payments because most of them may have temporary issues with cash flows. But they cater to the daily needs of people, so most of them should be back on their feet once they are allowed to open their businesses and start selling.
Are you seeing signs of a turnaround?
In some places it has already started. Maharashtra has lifted its lockdown, Telangana will lift it from Wednesday and Tamil Nadu has allowed standalone stores to function throughout the day. So we expect them to be back on their feet pretty fast.
How are the accounts restructured last year performing?
Of the Rs 100 crore we had restructured, there are two MSME accounts which have slipped. So 99 percent of those accounts are performing well.
NBFCs have been seeking a change in the definition of the NPA to 180 days past due (dpd) from 90 dpd…
Most of these businesses are small businesses. About 60 percent of my customers are first-time borrowers from an organised financier. They were earlier dependent on borrowing from their family or private moneylenders. By moving to an organised financier they have been able to cut down on their borrowing cost. In spite of that, a couple of months of inactivity or slowdown in business will affect their cash flows, which keeps happening on a regular basis. Probably a couple of months of a very strong monsoon or rains could impact their business and they miss out on payments. For NBFCs like us, our credit costs are around 2.5-3 percent, which we can control. The customer may not care if he is an NPA or a non-NPA account, but for us it matters because we have to provide excess capital for an NPA. It also impacts the borrower’s ability to move from an NBFC to a bank or to other lower-cost funding sources. So the change in definition will help both of us.
You are having to raise provisions, I’m sure. Will you need fresh capital?
Definitely not. We are more than adequately capitalised with a capital adequacy ratio of close to 30 percent. We already have a good deal of COVID provisioning, about Rs 500 crore. As of now, we feel it is sufficient.
Have you sent any inputs to the draft circular on four-tier regulation for NBFCs?
We have not sent it at the company level, but it has been sent from the holding company. On a broad range, we have no issues with what has been proposed by the RBI. The only thing we have asked for is a break on taxes on provisioning, which banks have and NBFCs are not allowed to. And of course, the 180-day NPA recognition has also been asked for.