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Covid-19: India needs three-fold rescue plan from govt, regulators, says HDFC Bank chief

FE Bureau

HDFC Bank managing director Aditya Puri on Monday sought to allay fears about the bank’s asset quality and risks emanating from the spread of the novel coronavirus. Puri said that the spread of Covid-19 should be seen as a biological crisis and not a financial one. The focus should be on that and the government has acted on this to flatten the curve. Primarily, the lockdowns would lead to cashflow
issues for companies. To mitigate the impact, he sought a three-fold rescue plan from the government and regulators-forbearance on bad-loan recognition, an out-of-turn rate cut and fiscal stimulus.

Puri said the duration of the Covid-induced lockdowns could range from three to nine months. "This could be shorter than any other crisis. I'm not saying it'll be three months, six months, nine months, but they've (doctors) have isolated the molecule and the tests are on. So, it could be six to nine months," he said. In the meantime, companies in India will grapple with cash flow-based issues and asset recognition norms will have to be relaxed in favour of an assessment-based identification of stress rather than a rule-based system, Puri said.

On the monetary side, he recommended a non-traditional rate cut so that yields are maintained properly and the system is reassured that the RBI is willing to pull out all stops. "We have to clearly come out with forbearance across the length and breadth because cash flow of almost all companies will be affected if we have the lockdown," Puri said.

On the fiscal side, too, Puri asked for expansion, pointing out that when the current government took over, the fiscal deficit was at 5.8% of gross domestic product (GDP) and the present crisis was nowhere in sight. The bottom of the pyramid would need money being made available to them, as they would be most impacted.

"So, we have to pull out all stops to make sure what is necessary to alleviate the issues with the daily-wage workers and companies and to make sure that we spend enough to be ready for the healthcare and we put in as much of a stimulus as we can. Then we live to fight another day," he added.

At the same time, Puri asked for the rural sector to be protected from the spread of the viral outbreak as this segment has been showing signs of recovery, with a good rabi crop working in its favour.
HDFC Bank is battle ready to deal with the outcome of the ongoing issues as the nature of its loan portfolio makes it less vulnerable. In addition, it is also sitting on liquidity worth $5 billion.

Eighty percent of the bank's wholesale lending is to AA and above-rated companies and its exposure is spread over 150 sectors. The bank’s exposure to finance companies is restricted to those owned by banks or very large corporate houses. "In the last one month, we have gone through our entire exposure with a tooth-comb, both corporate and retail, to see what is the impact and the sensitivity. It is not looking worrisome for us," Puri said.

White-collared workers, who constitute 75% of HDFC Bank's retail unsecured book, may take a hit only if the crisis turns out to be a prolonged one, Puri said. "Some (companies) will be impacted. (Our base is) white-collared employees of companies which have up to an ‘A’ rating," he said. HDFC Bank's shares ended at `770.50, 12.68% lower than their previous close on the BSE