Why struggling?businesses want loan moratorium extended till December | India Today Insight

Industry associations and firms say getting back to pre-Covid cash flow levels proving to be hard??

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Illustration by Siddhant Jumde.

Indian industry is witnessing a rising clamour to extend the moratorium on payment of loans till the end-December. The reason for this is that despite the economy entering the unlocking phase, most businesses that gradually restarted operations are struggling to get back to their pre-Covid cash flow levels. Companies in the travel, hospitality and entertainment sectors are still weighed down by the impact of the restrictions in place in most states.

The All India Motor Transport Congress (AIMTC), an apex body of transporters, has urged the Reserve Bank of India (RBI) to extend the moratorium on payment of loans for the road transport sector till December 31, arguing that transport firms are reeling under a financial crisis.

In March, the RBI had allowed a three-month moratorium on payment of all term loans due between March 1 and May 31, 2020. In May, this was extended by another three months till August to provide much-needed relief to borrowers, whose incomes have been hit by the Covid crisis.

‘The road transport sector in India is highly distressed and battling a deep financial crisis as a fallout of Covid-induced lockdowns. There is little hope of its revival in the current financial year...The critical condition of the sector is impacting more than 200 million people, directly and indirectly,’ the AIMTC said in a letter to the RBI governor, as per a Press Trust of India report.

MSMEs (micro, small and medium scale enterprises) have been the worst hit by the pandemic and the ensuing lockdown. “Our cash flows have dried out. We are neither getting our dues from the clients nor are we able to restart work,” says P.P. Ashokan, owner of Anntech Offshore Engineering, a Navi Mumbai-based 11-year-old firm that provides electrical and instrumentation infrastructure to the oil and gas sector. The economic slowdown had already hit the firm’s top line, reducing it by one-fourth to around Rs 3-4 crore. Now, the pandemic has caused even more damage. “Even if we restart work, it will require at least two months for the cash flows to normalise,” says Ashokan, who is also facing a manpower shortage. “I am already getting calls from the bank reminding me to pay the next loan instalment by September 5. But how can I do that without any cash flow?” Ashokan has to repay Rs 1.2 crore worth of bank loans and wants the RBI to extend the moratorium till end-December.

Some say even a moratorium may not help the industry much. “The spine of the industry is broken. Moratorium is just a deferment,” says Prakash Padikkal, owner of Havistha Steelfab in Rabale near Mumbai, a manufacturer of process equipment and storage tanks. He adds that the MSME sector is facing huge power bills, to the tune of Rs 7-8 lakh per enterprise.

Extending the moratorium period will put commercial banks, which are already burdened by huge non-performing assets (NPAs), under more stress. At the end of June this year, India’s five largest state-run banks collectively had at least Rs 7.9 lakh crore of loans under moratorium, including loans that were stressed even before the Covid outbreak. According to reports, as many as 60 per cent of loans under moratorium, which make for about 4-8 per cent of the banking sector loan book, could seek restructuring under an RBI special window. Recently, the RBI allowed banks to restructure loans to companies as well as individuals, which had been due for 30 days or less before March 1, due to the impact of the pandemic. A note from brokerage firm Jeffries has reportedly said that of these loans, as much as 50 per cent could slip into NPAs. As on September 2019, public sector banks had NPAs to the tune of Rs 7.27 lakh crore, as per central government estimates.

Meanwhile, the New Delhi-based PHD Chamber of Commerce and Industry has urged the government to defer the EMIs, instalments and term liabilities of companies without affecting their credit rating and any adverse action on them from the delays. Saurabh Sanyal, secretary general of the body, told INDIA TODAY this is critical since Covid has “halted the production cycle, disrupted the supply chain, and impacted inventories, which in turn has hurt cash flows and working capital of the MSME sector”

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