India’s longest serving bank chief Aditya Puri on Monday said that it was just a matter of time before the RBI and the government give asset classification and fiscal stimulus to the financial system tide over the the outbreak of the Coronavirus impact on credit quality.
Puri said forbearance was required to ensure lenders keep asset quality in check especially because disruption in cash flow was expected for several companies due to the lockdown in 80 Indian districts.
“Asset classification, according to me, they (RBI) don’t have a choice…Again on fiscal stimulus, again I think they don’t have a choice,” Puri the MD of HDFC Bank said. “RBI needs to come out with forbearance across the length and breadth of the industry. Infact even the government should relax its fiscal space and spend, this is the need of the hour.”
He also expects a non-scheduled rate cut from the RBI. The RBI’s Monetary Policy Committee is scheduled to decide on interest rates on Apr 3.
Puri also downplayed risks to the private lenders loan quality due to the outbreak of COVID-19, and said that the bank’s SME book was backed with additional collateral while the unsecured book was mostly to salaried class working with companies rated A and above.
“When the book is investment grade, there is cushion… Most of these companies would have the wherewithal to take six months to one year issues, whereby we would willing, given the fact they have fundamentally sound financials, to sort their cash flow,” he said.
80% of the bank’s wholesale lending are rated AA and above and is spread across 150 sectors. Similarly, in case of small and medium enterprises loan book, 80% of clients are covered with additional collateral. For the unsecured loan portfolio, which is 16% in total book, there are no signs of stress.
Also, 75% of personal loans are to salaried customers of best corporates and are granular in nature. Most of the bank’s SME portfolio comprises of borrowers which have a self-funding component of 60-65 percent. The bank also takes additional collateral and follows stringent lending norms.
Puri also said that large part of bank’s book is to quality customers and the bank had tightened underwriting standards even before the coronavirus outbreak. He also said that credit card spends will come down in the near term because of restrictions.
“In the last one month, we have gone through are entire portfolio with tooth comb. Both corporate and retail to see what is the impact. We have done all the sensitivity analysis and it is not looking worrisome for us. We will there be some (impact)? Absolutely but we also have large amount of deposits invested in government securities, which will give us further cushion,” he said.
Puri who along with key managerial staff is in self isolation also emphasised that the succession planning was on track and the board would recommend a successor to the RBI by next month.