New Delhi: Former Economic Affairs Secretary Subhash Chandra Garg has said that the COVID-19 crisis and economic lockdown has upended the finances of all three groups of borrowers, most stridently businesses and governments.
Likewise, it has thrown the lenders in tailspin, most notably the banks and non-banks. Garg has said that COVID-19 is dealing a deadly blow to several businesses – transport, travel, entertainment, sports which would cause a sharp spurt in non-performing assets.
Writing in a blog, Garg said that a significantly sharp spurt in non-performing loans of credit providers – banks and non-banks alike – looks imminent.
Approximately 15 per cent of the current stock of credit to businesses or about Rs 15 lakh crore was locked up in non-performing businesses even before the COVID-19 crisis struck.
Garg said that while it would require a borrower by borrower assessment, it would not be surprising if the non-performing business loans double to about Rs 30 lakh crore.
“Economic lockdown is going to make several performing ‘non-essential’ businesses suffer losses. These would surely lose a lot of their working capital. Many businesses will require additional working capital”, Garg wrote.
He added that several businesses would need to make additional investments to make their businesses COVID-19 risk-free. Some businesses would make additional investments to capture new or enhanced opportunities.
“There might also be additional borrowing requirement of, let us assume, about Rs 10 lakh crore, over and above normal annual requirement, to revive the businesses, make investments to restructure businesses to manage COVID-19 risk and to maintain higher working capital”, Garg said.
According to Garg, the combined outstanding borrowings or credit of the governments, businesses and households in India is of the order of Rs 300 lakh crore or $4 trillion at Rs 75 to a dollar.
The central government and state governments together owe about Rs 140 lakh crore. Outstanding credit of businesses of all types is about Rs 100 lakh crore. Estimated stock of credit held by the households is about Rs 50 lakh crore.
There are several issues connected with financing of enlarging government deficits, falling credit-worthiness of businesses, increasing demand to fund relatively poor credit and the like.
The government would be needing additional credit to meet the fiscal hole caused by COVID-19 and economic lockdown. The existing stock of credit to businesses is likely to face severe downgrade due to ballooning of the non-performing loans of banks and non-banks.
(IANS)