4.25 per cent. And ticking

The RBI, no less, warned that we are headed for dangerous times. Times that shall trouble us, come April 2021, depriving us of years of savings. But why worry? Only Rs 20 lakh crore-plus is going to waste

I hate sharing bad news. Especially as I have been guilty of doing just that for months now. Week after week. Column after column. Ashamed of and disgusted with myself for being such a harbinger of negativity and nepotism, I pledged to and did stay mum for a bit, thought hard and deep, in a desperate promise to come back with happy tidings.

Oops. Nay. No such luck. I am back indeed, but with even a darker tale. Try as I might, there is little and nothing on the horizon that speaks happy today. If anything, the murky and dusky is getting mustier and danker. My Lord, what have the world and India come to?

So, for around four weeks now, I have waited… waited for someone to speak numbers. Numbers that bespeak the reality that confronts me and each Indian, over the next few months. And here, we are not talking COVID-19 and its fallout and impact, but our legacy economic and financial numbers. Dismal and flaccid barely cut it, for these figures are scary and numbing. Perhaps that's why no one is speaking of these, and there's no wonder why.

Why whisper?

Three Thursdays back, which makes it just short of a quarter-century of days back, the Reserve Bank of India (RBI) issued a circular, warning of an imminent danger of bank non-performing assets (NPAs, read 'bad loans'), jumping from the present and disastrous levels of 8.25 per cent to around 12.5 per cent by March next year, in a baseline scenario. The central bank's Financial Stability Report (FSR) further noted that the NPA ratio could jump to as high a level as 14.7 per cent in the event of severe stress, given the already bleak economic scenario and the further debilitating impact of the Coronavirus pandemic on Indian business and economic outlook.

That's why I waited for someone to talk. Talk numbers. In vain apparently, for inexplicably, no one is talking. India's banking system, both nationally-owned and private, has gross assets of Rs 600 lakh crore. Banks have to retain a cash reserve ratio (CRR) of 25 per cent for any future contingencies. Even a baseline increase in NPAs of 4.25 per cent essentially means a rise in bad loans of over Rs 20 lakh crore. And if we go by RBI's FSR report, we are looking at bad loans in excess of Rs 25 lakh crore. So why are we still whispering? Why are we staying mum and petulant?

Staggering numbers

These estimated new bad loans may be near or over 10 per cent of the country's Gross Domestic Product (GDP), pretty much equal to the massive relief package announced a few months back by Union Finance Minister Nirmala Sitharaman, shortly after Prime Minister Narendra Modi indicated the advent of a never-before bailout plan to wade India and Indians through this once-in-a-century epidemic.

Following RBI's startling revelation, key publications reported that while the disruption due to the COVID-19-induced lockdown was expected, the central bank's report also warned that nearly half of the outstanding credit till April 30, 2020, was under moratorium, somewhat higher than estimates provided by bankers. A total of 48.6 per cent customers by number and 50.1 per cent by value had made use of the moratorium till April 30, 2020. While 66.6 per cent of borrowers in state-owned banks opted for the deferral, the share for customers at private sector banks was 49.2 per cent. Non-banking financial companies (NBFCs) had granted a moratorium to 49 per cent of their customers.

Provisioning hazards

Some reports said the level of deferrals availed of by borrowers is being monitored by the Central Bank as it reflects the potential stress in the system. At the end of May 2020 itself, analysts at Macquarie and other agencies estimated that the extent of loans under moratorium was around 25-30 per cent. "The regulatory dispensations that the pandemic has necessitated in terms

of the moratorium on loan instalments and deferment of interest payments may have implications for the financial health of banks going forward," the RBI itself cautioned.

The Central Bank further noted that risk aversion and lacklustre demand have impeded the fuller flow of finance from both banks and non-banks into the economy. A risk survey that the RBI carried out shows that about 56 per cent of the people contacted feel that the prospects of the banking sector are going to deteriorate considerably in the next year or thereabouts. Consequently, the earnings of banks could be impacted due to lower net interest margins, elevated asset quality concerns and a possible increase in provisioning requirements.

But, at the risk of repeating my tone-dead self, no one has spoken of these numbers for 25 days. So, here I am, doing so. Someone has to…

That, then, is the story on NPAs — done and dusted.

Joblessness peaking

Let's now talk unemployment. According to a Center for Monitoring the Indian Economy (CMIE) report published last week, over 1.89 crore qualified and salaried Indians have lost their jobs since April this year — in just the last four months. Mind you, we are not talking of migrant workers or labourers; we are talking of India's educated and qualified employed people in metropolises, urban centres and key cities, working in Indian and multinational corporations (MNCs). And these are the people mentioned in the above segment, salaried, with EMIs and loan repayment schedules for homes, cars, studies and what have you.

The International Labor Organisation (ILO) and the Asian Development Bank (ADB) have taken it a step further — they say the 'Lockdown Generation' will take months, if not years, to emerge out of this pandemic, in terms of financial sensibility. As per their given data numbers, in May this year, one lakh educated urban Indians got new jobs. June was better, with this number increasing to 49 lakhs. July, sadly, brought us back to Earth, when 50 lakh of these people lost their livelihoods in one month alone. All from India's esteemed middle-class — the biggest market for homes, automobiles, white goods and retail investments, including mutual funds. Today, just a few months later, all these said market segments are deeply in the red.

The monkey wrench

And now, there is a brand-new spanner in the works. Shortly after its warning report on potentially-increased NPAs, the RBI has announced a loan restructuring plan for retail investors, which extends its tentacles to small corporates as well. Of the retail investors, more than half opted for the benefit of deferred payments, moratorium, on loans availed by them, as offered by the Government of India and extended to them by the RBI.

As per its own admission, the central bank's move will impact investors to the tune of around Rs 8.4 lakh crore, or 7.7 per cent of the overall system's credit, under the newly-announced recast package, as per a report released by domestic ratings agency India Ratings and Research (IRR). And over 60 per cent of this Rs 8.4 lakh crore is susceptible to quietly and inexorably slide into the non-performing assets (NPAs) category if not for the recast.

The Reserve Bank announced a recast package focused on a case-by-case approach for restructuring rather than a blanket or sectoral approach. As mentioned, the bank had also allowed small-value non-corporate loans to be recast. Unlike previous experiences of global financial crises, where nearly 90 per cent of the restructuring happened in corporate loans, the non-corporate segment will account for a higher share this time around according to (IRR).

What does this mean?

Amid all the mayhem, there is a silver lining — if you want to call it that for a chosen few. Those that had an investment plan already in place; they may just about get a breather. The central bank's plan to save the masses will insidiously and surreptitiously protect those that prepared a future before COVID-19. They shall benefit from the extended moratorium, for their investments and savings shall be safer.

In the longer term, though, it holds the potential to obliterate everything in its path. For it only delays the inevitable, the inscrutable. No one Indian or in India can or will survive the scar of our NPA wrangle. We shall all have to pay the price. What parts of our investments or savings or

lives we lose are the only things to argue and quell over. This is suddenly a block race. All that's changed are the basic parameters. Who survives? Who doesn't? And paradoxically, even those that purportedly make the rules don't have a clue.

The writer is a business analyst and communications specialist. He can be reached at

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