interview | T.T. Srinivasaraghavan Business

‘India facing demand recession’

T.T. Srinivasaraghavan

T.T. Srinivasaraghavan  

Bumper harvest a positive for agri: Sundaram Finance MD

There are those who believe that with social distancing going to be the new norm, demand for ‘personal transport’ could see a surge. This might boost car sales, especially in the second half of FY21. We have to be patient and prudent till normalcy is restored, says T.T. Srinivasaraghavan, MD, Sundaram Finance Ltd. (SFL), in an interview. Edited excerpts

The impact of COVID-19 can be felt in all sectors, and financial services is no exception. How is SFL handling the situation?

The answer actually lies within your question. There are virtually no exceptions. Other than those who are manufacturing PPEs, sanitisers and other COVID-related stuff, everybody is more or less in the same boat. Business has come to a complete standstill and demand for trucks and cars has been virtually non-existent since the lockdown began. We just have to be patient and wait for better days.

SFL Q4 profit has fallen after several quarters...

Typically, most retail borrowers and small transport operators bring their accounts up-to-date at the year end, with a view to keeping their credit history relatively clean and start the new financial year on a clean slate. The lockdown essentially affected the recovery of dues from delinquent accounts, resulting in a higher credit cost during the quarter. This explains the drop in net profit for the quarter.

When will economic activity pick up?

Unfortunately, I don’t have a crystal ball, so I cannot really give you a meaningful answer to that. With the lockdown continuing through May, the first quarter looks pretty dismal. However, as businesses reopen in June and people begin to rebuild their livelihoods, we should see a resumption in economic activity, albeit in a muted fashion.

Rural India has thus far been relatively unaffected by the pandemic and we pray that it stays that way. A bountiful harvest followed by efficient procurement, the recently announced increase in Minimum Support Price and the prospect of a normal monsoon are all extremely positive for the agricultural sector and will, hopefully, lead to higher rural consumption.

The other major driver of economic revival is, of course, infrastructure investment and the government’s moves in this regard will be keenly watched.

The Centre had announced a stimulus package with a focus on NBFCs as well. Will it boost growth?

The stimulus packages announced by the government are indeed steps in the right direction and have been welcomed by the industry. However, the problem we are facing today is a demand recession.

Given the heightened uncertainty surrounding the pandemic and its aftermath, buying a car or a truck is unlikely to be a priority for most people. It would therefore be too simplistic to link the stimulus packages to an automatic boost to growth.

How different is the recent package from the previous ones by the Centre / RBI?

The earlier attempts to channelise funding to non-banking finance companies, (NBFCs), especially the small and medium ones, were not too successful given the risk aversion of banks, in general. The recent measures are, therefore, specifically targeted towards the smaller NBFCs and those with lower credit ratings and should be welcomed. The crucial test, as always, is in the actual implementation of the schemes.

Auto sector has been down for almost 18 months. What are the steps that can boost CV and PV sales?

CV sales have been on a downward curve since October 2018. A number of factors ranging from a sluggish economy to revised axle load norms have brought us here.

The switchover to BS-VI norms could not have come at a worse time. Unfortunately, there is no silver bullet that can boost CV sales; it can only happen with a revival in economic activity, improvement in movement of goods and increased investments in infrastructure. There are those who believe that with social distancing set to become the norm, demand for ‘personal transport’ could see a surge. This might boost car sales.

Liquidity has been a major problem for everyone. How about SFL? What are the fund raising plans for the year?

Fortunately, liquidity has been more than comfortable for us. We have raised approximately ₹3,500 crore in recent weeks and pricing has been quite favourable. Our fund raising plans will depend on the trajectory of economic recovery.

What are your thoughts on the current scenario and the outlook?

These are unprecedented times and while we hope for an early end to the pandemic and a return to some semblance of normalcy as quickly as possible, we have to be both patient and prudent till it blows over.

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Printable version | Jul 9, 2020 10:15:28 PM |

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