R Baskar Babu: “A general moratorium may not be the solution; could have an impact on the credit culture ‘
R BASKAR BABU, CEO of Suryoday Small Finance Bank (SSFB), spoke with GEORGE MATHEW about the impact of the Covid pandemic, in particular collections and refunds by customers. Edited excerpts:
How did the second wave of the Covid pandemic affect the bank’s activity? Are you seeing a decrease in reimbursements or collections?
We have been able to consolidate our capital on a constant basis and maintain high liquidity. While it is difficult to determine the impact of the second wave at this point, as an immediate observation it did impact our collection efficiency in April 2021, which fell to 81% from 87% in March 2021.
During the first lockdown, all of us (including industry participants) were unprepared, which led to a degree of panic and apprehension. We have been proactive in this phase, citing the risks to employees. We are confident that the mass inoculation campaign by central and state governments will lead to significant improvement over the next 3-4 months.
After the catastrophic death, we saw a silver lining with the introduction of the FY21 Covid-19 H2 vaccine. Likewise, on the business front, we were back on the road to recovery. third quarter of FY21, as we ended the fourth quarter with a strong performance. Although we are not out of the woods yet, with the second wave hitting us harder than other countries, we continue to work towards the state of normality in partnership with all employees, customers and all stakeholders of the bank. However, due to the uncertainty created by the second wave, it will take a quarter to understand the incident impact on business.
Where does the stress come from for a small bank like SSFB? Do you foresee an increase in non-productive assets (NPA)?
Our gross NPAs, in March 2021, were 9.4%, compared to the pro forma gross NPAs of 9.3% declared in December 2020. On the other hand, the PAR (portfolio at risk) 1 + DPD (days of delay), as of March 2021, reduced to 21% from 29% in December 2020. The bank also carried out a one-off restructuring of customers, representing 3.3% of advances in March 2021. In addition, we have built our buffer provisions by increasing our unused floating reserve totaling Rs 91.3 crore, as of March 2021. We maintain a healthy provisions coverage ratio at 63.7% as of March 31, 2021. We will have yet to see the impact of the second wave about defaults.
Small finance banks serve customers at the bottom of the pyramid. How do they experience the situation?
I think as individuals they are better equipped, they understand the model. Moreover, digitization has reached new heights in this pandemic and has pushed even this segment to adapt to this change. We had deployed an emergency overdraft product during the last pandemic and it was successful with this segment, although it was a digital product, but the simplicity of transactions and ease helped them in this period of temporary crisis.
Do you think there is a case for another moratorium on lending as the mini-locks hit the economy again?
A widespread moratorium as a one-stop-shop may not be the answer in the short term and could impact the credit culture in certain customer segments. The restructuring option, however, can provide greater flexibility and help align with the client’s ability to repay the loan.
Do you think the banking system needs more liquidity? Do you recommend specific measures to deal with the problems related to Covid?
We believe that the regulator has adequately supported the industry through various measures to ensure adequate liquidity in the system. As a policy, we have always maintained a higher capital adequacy (51.5% in March 2021), given that 70% of our portfolio is unsecured in nature. At times like these, such a step added an important buffer. Over the past year we have also maintained excess liquidity amounting to 37% of our overall balance sheet size of Rs 6,712 crore.
What is the relevance of small financing banks in the new environment against the backdrop of the Covid pandemic?
Small corporate banks have been able to grow significantly over the past 3-4 years, reaching out to the unbanked and underbanked segments. Over the past few years, they have also been able to build a good liability franchise offering these services to the customer segments they serve. We have always focused on launching products that meet the needs of our customer base… and provide working capital to our JLG customers, especially during times of pandemic stress. We believe that SFBs are sufficiently capitalized, growing at a steady pace, and will also be able to play history well in the long run.