‘We are in a tough world and have to be over-prepared’
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Shyam Srinivasan, MD &CEO, Federal Bank, says that the next 12-18 months will be a period to watch out for stress in the economy, especially borrowers. In an interview to George Mathew and Sandeep Singh, Srinivasan also called for a 50 basis points cut in repo rate and cash reserve ratio. Excerpts:
Do you expect any major problem for banks considering the spillover impact of slowdown?
I don't think anybody can be insulated. It is how efficient you are and how you prepare yourself to handle it. This is what we are working on. It is a tough market condition, no doubt, but more than the market condition the sentiment is one that is worse than the underlying business. Therefore, we are working very hard at it to just stay fit.
What if the monsoon is weak?
I am a little more optimistic, and the monsoons have improved in the last one week. There is no doubt that there is stress and NPAs for banks are rising and everyone has to be on guard.
The IIP growth is slowing. Does that make a case for the RBI to cut rates?
There is a demand for interest rate reduction. However, I don't see a sharp decline in rates in the next 1-2 quarters as the RBI is still watching the inflation matrix. We would ask for a cut in the repo rate by 50 basis points and CRR by 50 basis points. Liquidity is not an issue but excess liquidity, if it flows in, will create excess demand and that will lubricate the economy.
But where is stress coming from?
I see stress coming from customers who are over-leveraged. Anybody who has borrowed Rs 600-700 crore or more is on high debt, their market cap has come down. If we see all that has gone into restructuring requests, they are these overleveraged clients. Banks that have been more cautious and conservative at that time may have been faulted for being conservative but now are in a batter shape and we are somewhere there. However, we are in a tough world and have to be over-prepared. The pressure is on mid-corporate who are either dependent on upstream big corporate or order book and cash flow and have to face near-term stress. Anyone who is making EBITDA less than the cost of the money will struggle. Business models would distinguish who will last and who will not. So, the next 12-18 months will be a period to watch out for stress.
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