Covid-19 crisis: Slippages may jump to Rs 5.5 trillion, says India Ratings

Credit costs could touch Rs 2.7 trillion.

Stress emerging from the severe economic shock caused by steps to contain the pandemic may drive total slippages to Rs 5.5 trillion in FY21.
The corporate side may see slippages of Rs 3.4 trillion, and non-corporate side — retail, farming and MSMEs — may account for Rs 2.1 trillion, according to India Ratings.

Banks faced elevated provision pressure (amount set aside for stressed loans) resulting from the corporate stress cycle, from FY16-FY20. For this, they had made substantial provisions and were moving towards a moderated credit cost cycle.

However, the Covid-related measures are likely to result in another cycle of stress. Additionally, the pressure on non-corporate segments, which were already visible before the outbreak, is likely to intensify, said the rating agency.

With a significant drop in economic activity, most sectors in India are expected to experience varying degrees of revenue contraction in FY21, on account of demand and supply disruption. This presents a fresh challenge to banks, which, over the last four years, have been reeling from corporate stress.

Referring to an analysis of 30,000 firms, the rating firm said the total stressed corporate pool may increase from 3.8 per cent of the total bank credit in December 2019, to 6.6 per cent in the post-Covid phase.

The incremental stress is mainly from sectors including power, infrastructure, constructions, hospitality, iron and steel, telecom, and realty.

Referring to non-corporates, it said stress and slippages would aggravate in retail, agriculture, as well as in the micro, small and medium enterprises (MSME) segments. About 40 per cent of incremental slippages could come from non-corporates.

RBI's EMI moratorium could give Rs 2.1 trn liquidity to companies: Report

'Sectors with higher leverage will be major beneficiaries'

The Reserve Bank of India’s three-month suspension of EMIs could provide a liquidity breather of Rs 2.1 trillion if all corporate houses avail it, says a report.

The findings by Crisil Ratings are based on assessment of 9,300 of rated non-financial sector companies across 100 sectors.

It said sectors with higher leverage, such as power, telecom, roads, textiles and fertilisers, will be the major beneficiaries and account for nearly 47 per cent of the total breather available.

“The moratorium announced by the RBI on interest and principal obligations due between March 1 and May 31, 2020, would be tantamount to a liquidity breather of Rs 2.10 trillion if all companies opt for it,” the rating agency said in a report.

The amount was arrived at by considering total principal and interest falling due in the three-month period, it said.

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While the moratorium provides substantial benefit, actual salary payments will depend on liquidity available on the day of the payout, it said.

Information technology consulting firms and automobile makers have low leverage and will gain relatively less from the moratorium, the report said.

But they typically maintain high liquidity, which can be used to pay salaries, the rating agency said

Covid-19 impact: Amazon won't require sellers to repay loans until April 30

Merchants of popular items from toys to apparel have worried that the temporary ban on stocking goods in Amazon warehouses.

Amazon.com Inc on Wednesday said it temporarily would not require sellers in its marketplace to repay loans it had made to them, as merchants confront the prospect of declining sales during the coronavirus pandemic. The world's largest online retailer notified sellers that its programme known as Amazon Lending would pause repayments beginning Thursday until April 30. Interest would not accrue during that period, it said.

The programme has offered sums between $1,000 (846.5 pounds) and $750,000 to merchants looking for capital to acquire inventory, expand their product lines and advertise on Amazon.

"Loan repayments will restart on May 1, 2020 ... You will have the same number of remaining payments once repayment resumes," Amazon said in a seller message obtained by Reuters.

More than 20,000 merchants have gotten loans from Amazon, the company said in 2017. By the end of 2019, Amazon stood to receive $863 million from sellers to whom it provided financing through the lending program, according to a company filing. The loans' terms range from three to 12 months, carrying interest rates from 6 per cent to 19.9 per cent.

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As Americans turn to online shopping while quarantined, many online sellers, who are small and medium-sized businesses, are facing cash flow constraints amid supply chain and logistics issues caused by the outbreak. EBay Inc , another major online marketplace, said on Wednesday it will defer most selling fees for merchants for 30 days.

Amazon's offer may provide relief to sellers, some of whom could be hard hit by Amazon's recent decision to restrict its US and European fulfilment services to household, medical and other essential goods during the outbreak.