Banks have Rs 11 lakh crore in coronavirus-hit sectors
European Central Bank (ECB) has reduced the capital buffer requirement for banks to allow them to lend more in these coronavirus-affected times. Chinese Central Bank has provided refinancing support to Covid-19 impacted sectors as well as lower lending rates for small businesses. Central Bank of Australia, the Philippines Central Bank and many others are relaxing rules for banking sector to help the industry.
While interest rate cut and bond buying to create additional liquidity is uniformly followed by all the central banks, the banking industry needs specific measures to help select industries fight the impact of the Covid-19.
In India, the total exposure of banks to Covid-19 hit sectors is in excess of Rs 11 lakh crore. The government, RBI, banks and the industry are in discussion to decide what best can be done given the current state of banks and the industry. Especially for sectors such as hospitality, tourism, trade, transportation, aviation which have been impacted directly. Micro, small and medium enterprises (MSMEs) are also impacted because of shortage of funds and the size of their businesses.
As per RBI's sectoral data, the loan outstanding against the trade (import and export industries) is the highest at Rs 5.19 lakh crore followed by MSMEs, where the outstanding loans are Rs 4.73 lakh crore. Transports operators owe Rs 1.41 lakh crore, and tourism, hotel and restaurants (Rs 45,394 crore).
The government, RBI, banks and industry representatives are already in discussion to provide relief to Covid-19 hit sectors. In fact, a relaxation in 90 days default norms before declaring them as NPAs would give relief to both the industry and the banks. The industry would continue to enjoy credit facility while the banks will not be required to make any NPA provisioning from their profits.
The current NPA at over 9.1 per cent ( Rs 9.36 lakh crore ) of total advances are already at an alarming level. In fact, the NPA provisioning pressure and the subsequent delay in resolution of these assets has been putting capital pressure on banks. Banks need capital for provisioning as well as growth to survive in the market.
The PM has already set up an economic task force which has to decide on an economic package for industries after talking to all the stakeholders. The Indian Banks Association (IBA), a representative body for banks, is also working on sending its recommendations to the RBI for certain relaxation.
Experts suggest the RBI should look at broader relaxation from capital requirements like what the global central banks are doing rather than relaxing the NPA asset classification norms for select sectors.
So far , the RBI has announced a long term repo auction of Rs 1 lakh crore to create liquidity for banks, which will help them to lend more. Similarly , the RBI has also announced buyback of bonds up to Rs 10,000 crore.
Coronavirus impact: FM Sitharaman takes stock of key sectors
Finance Minister Nirmala Sitharaman today met Minister for Animal Husbandry, Dairy and Fisheries Giriraj Singh to assess the economic impact of COVID-19. During the meeting, Finance Secretary, Secretary DEA, Secretary (AHD) and Secretary (Fisheries) were also present. The FM is also scheduled to meet ministers of civil aviation, MSMEs and tourism today.
The special COVID-19 economic task force announced by Prime Minister Narendra Modi on Thursday will likely work on an economic package for the sectors most affected by the coronavirus outbreak, including informal sectors. He said the task force would ensure that all necessary steps were taken to reduce the economic difficulties arising out of the crisis. He also urged the FM-led task force to implement them effectively.
He said this was a difficult time and the need of the hour was to take stock of economic interests of everyone. "I request the business world and high-income groups to that, if possible, keep in mind the economic interests of those who serve you," said the PM.
As per experts, the task force will have to take drastic steps like relaxation in NPA (non-performing assets) norms, deferral of tax payments and the announcement of income support to the people working in the unorganised sector.
Notably, travel, tourism and hotel industries are some of the worst-affected sectors due to travel bans, social distancing and suspension of business activities. While other related sectors like fuel minerals, electricity and water and rubber, plastic, coke and petroleum products, etc are also likely to be impacted adversely.
Coronavirus outbreak has disrupted the global economy, and countries, trade blocs are taking fiscal measures to overcome the crisis. While India is yet to come up with a rescue package in wake of coronavirus crisis, major economies of the world have announced billions of dollars worth bailout packages to offset losses due to the COVID-19's outbreak.
The US alone has set aside over $1 trillion in a bid to protect the economy from COVID-19. UK, Switzerland, China, Sweden, Austria, and Japan, have also taken fiscal measures, including offering support to local businesses.
Coronavirus: Demand for tax cuts, relaxed NPA norms, cash transfers grows as economy hits rock bottom
As many countries afflicted by the deadly coronavirus have stepped up efforts to save economy and businesses in the fallout of the virtual lockdown, travel bans and suspension of business activities, the demand for tax cuts, relaxed NPA norms and cash transfers has grown in India.
The benchmark indices Sensex and Nifty crashed around one-third from their peaks in January this year, while the rupee hit Rs 75 a dollar, reflecting gloom and doom in the economy post the outbreak of coronavirus.
Given the situation, like many countries in the West, India needs to come out with an economic assistance or a rescue package to support the economy. There are strong speculations that Prime Minister Narendra Modi might announce an economic package tonight in his address to the nation.
Economists suggest that the government should take steps on both monetary and fiscal front as well as work in co-ordination with the state to tide over the situation. Key announcements expected are rate cuts and relaxation in NPA norms for sectors impacted by the coronavirus outbreak.
"Just like any other country, we need to support our economy. Cut interest rates, do an intervention in the market to buy gilts, PSU bonds and high credit corporate bonds. Provide loan subvention to industry which needs support," says Nilesh Shah, MD, Kotak AMC.
"Banks should be allowed to consider a temporary restructuring of loan terms for the most-affected borrowers," says Sachchinand Shukla, chief economist, Mahindra Group.
Shukla also says fiscal response will require addressing families' and firms' balance sheets. He is in favour of targeted measures for directly affected sectors such as aviation, retail and leisure etc.
The steps directly helping the affected sectors include (GST) rate cuts and deferral of tax payments.
"In days to come, the struggling sectors particularly travel, hotel, food industry will certainly approach the GST Council as well as the government to request a reduction in GST rates to enable them to get over the loss of business. We hope the GST Council looks into the aforesaid on a priority basis and announce a suo moto reduction in GST rates for the impacted sectors including travel, hotel and food industry," says Pritam Mahure, a Pune-based chartered accountant.
Experts also demand special packages for individuals, especially, those working in the unorganised sector. An SBI research report says that the increased excise revenue from oil should not be used for bridging the fiscal gap and pleasing the markets, rather it must be used as a fiscal package for income support to the people working in the unorganised sector who are already facing the brunt of loss of jobs.
Sachchinand Shukla of Mahindra Group says government should leave more money into the hands of people through fuel price cuts, subsidies, free diagnostics and curative policies for those quarantined.
Shah of Kotak AMC says tax cuts and direct transfer schemes such as Pradhan Mantri Kisan Sanman Yojna will support consumers/daily wage earners who have been impacted by the coronavirus-led slowdown.
Coronavirus lockdown: GST collections may see a sharp drop in March and April
Virtual lockdown and closure of offices across states will have impact on GST collections in March and April even as taxpayers demand extension of date of filing of returns from March 20 to some other date.
Businesses across the board would operate at minimal level. Primarily, sectors such as travel, hotel and food will see a sharp fall in the business.
According to an SBI research report, the inoperability analysis for three sectors namely Transport, Tourism and Hotels shows significant impact on demand and hence output. "On an aggregate basis, we estimate that the impact of a 5 per cent inoperability shock could be 90 basis point on GDP from Trade, Hotel and Transport to Storage and Communication segment. It could be spread over 2019-20 and 2020-21, with a larger impact in the latter year."
The report further says on an average 25 million and 300 million people use airplanes and trains, respectively each month. "A 10 per cent reduction will lead to loss of revenue of Rs 3,500 crore on a monthly basis."
Trade, hotels, transport, communication and broadcasting were likely to generate Rs 33 lakh crore worth of value of services in the current financial year. This number might be revised downward, impacting GST collections from this segment.
GST is charged at 5 per cent on economy class airfare and 12 per cent on business class airfare, while GST on train fare is 5 per cent. The GST on hotel rooms with tariffs of up to Rs 7,500 per night is 12 per cent and the tax on room tariff of above Rs 7,500 is 18 per cent. Impact on transport, tourism and hotels would further impact sectors such as fuel minerals, electricity and water and rubber, plastic, coke and petroleum products.
All these would impact the GST collections immediately further squeezing the government's fiscal situation in the current financial year though finance ministry officials expects the impact of corona virus to be visible only in the next financial year. The government had a GST collection target of Rs 1.25 lakh crore in March. That looks unlikely now. In February, the monthly GST collection was Rs 1.06 lakh crore against the revenue department's target of Rs 1.10 lakh crore.
As per the central government's revised budget estimate, revenue from GST in the current financial year is likely to be Rs 6.12 lakh crore. Till January, the collection was around Rs 5 lakh crore.
Meanwhile, with most offices have been forced to work on minimal staff and many have asked their employees to work from home, many businesses would find it difficult to file returns on the due date - 20th March. There is now demand from some quarters that GST filing dates should be deferred.
"As the taxpayers short of staff as most of them are unable to report to offices, an extension of due date of payment of GST and filing of return is eagerly being awaited," says Pritam Mahure, a Pune-based chartered accountant.
Rajat Mohan, partner, AMRG & Associates, says though they are not facing any problem technologically, flow of data is a big issue. "There are no discussions around issues with the data that we have of our clients as they are shutting down offices. We are just pushing across the same to the servers and getting it filed," he says.
Coronavirus effect: Moody's slashes India's GDP growth to 5.3% for 2020
Global rating agency Moody's Investors Service on Tuesday slashed India's GDP growth estimate for 2020 calendar year to 5.3 per cent on coronavirus implications, ongoing travel restrictions and heightened containment measures. The agency has projected a 5.8 per cent gross domestic product (GDP) growth for 2021.
In February, Moody's had lowered India's GDP growth to 5.4 per cent for 2020 from 6.6 per cent forecasted earlier, citing coronavirus implications on the economy.
India's GDP growth improved marginally to 4.7 per cent during the third quarter of 2019-20, from a 6-year low of 4.5 per cent during the July-September quarter. The National Statistical Office (NSO) has pegged India's economic growth for the current fiscal at 5 per cent - the lowest in 11 years - but it expects a recovery in FY21 when the economy is forecasted to grow at 6-6.5 per cent.
According to Moody's, there would be significant economic fallout from a more rapid and wider spread of the coronavirus. It said dampening of domestic consumption demand in affected countries exacerbate disruptions to supply chains and cross-border trade of goods and services.
"The longer the disruptions last, the greater the risk of global recession becomes," it said.
"A number of governments and central banks have announced countervailing measures, including fiscal stimulus packages, policy rate cuts, and regulatory forbearance; however, the effectiveness of policy easing will be blunted by measures to contain the outbreak, and policy space is constrained for some sovereigns," the agency added.
Moody's has also revised its forecasts for most Asia-Pacific (APAC) economies on coronavirus impact as well as the recent oil price shocks.
"Our baseline scenario assumes declining consumption levels and continuing disruptions to production and supply chains in the first half of 2020, followed by a recovery in the the second half of the year," says Christian de Guzman, a Moody's Senior Vice President.
"In the short run, this is playing out as both negative supply and demand shocks, and the longer the disruptions last, the greater the risk of a global recession," adds Guzman.
Rising infection rates would further impede global sentiment, heightening asset price volatility and tightening financing conditions, which could snowball into a deeper economic contraction.
A number of governments have already announced measures to cope with the impact of the coronavirus, and Moody's expects there will be more fiscal stimulus as the extent of the economic fallout becomes clearer. However, some governments - mainly frontier markets - may be constrained by their high indebtedness and limited access to funding, it added.