Though the process of unlocking has been initiated in different phases, corporates see a bigger challenge in the coming months. The biggest problem is liquidity and solvency. And another challenge is to make a budget for the next financial year. The costs will remain the same whereas revenues will be greatly stressed. Of course, it will put stress on npa management as well.
Businesses have been attacked from three fronts- the demand fallen, the supply chain got hampered and liquidity vanished. Though some measures were taken by the government to improve liquidity by infusing the same through the banking system. The main aim was to avoid job loss and eventual financial crisis.
The true effect of liquidity transmission will be visible only when the Micro Small and Medium Enterprises (MSME’s) will get benefited. So far, only large business houses are getting the fruits of the efforts. Also, banks are giving limited credit risk in the pandemic situation. So, there is no major positive effect as such. Experts suspect a surge in npa in india.
Large corporates will have a direct impact if they will not get demand from MSME as it is the essential element of the supply chain. Hence, liquidity flow has to be there up to the MSME.
What is the way out?
MSME will have to rework the payment terms because their customers present less credit risk and can refinance the loans. Large corporates will have to do reverse factoring arrangements. Thus, MSME can monetize their receivables and control the situation in a better way.
It is important that a credit guarantee scheme is announced by the government. It will avoid the NPA crisis. Measures like wage subsidy can provide better liquidity reach. Most importantly, there should be efforts made to build more resilient enterprises so that they can sustain further episodes of pandemics.
So, what is the takeaway? It is preserving liquidity. Also, the government has to prioritize customers and products based on cashflow. The focus has to be moved from CAPEX to OPEX. It can be a gamechanger in boosting the economy and keeping the npa recovery process in control.