The Covid-19 pandemic’s massive spread has created an extraordinary and extremely difficult situation for all segments of society, worldwide. This could be more so for the business community at large, which runs the show on the back of funds borrowed from banks as loans that are repaid from the profits they make at regular intervals. Running a business is no easy job, and more so in India.
So also with the salaried class, which forms a large bulk, to which too EMI is today the main hope and obsession, be it for purchase of an apartment, building a home, buying a vehicle to travel or educating their children. While small-time retailers and business owners lead a hand-to-mouth existence, most of the salaried class can afford to have a carefree life as their salaries are definitely coming in at the end of the month. The same assurance is not enjoyed by those who are job creators and employ the salaried class.
When iterations of lockdowns took effect, life stood still and many among these segments threw their hands up. Their earnings are little, and EMI or other repayment is impossible. So with farmers too, who take loans and raise their crops. Most activities in public and personal life today are motored by loans.
Some consideration was evident on the part of the government and the RBI, which together announced a moratorium on loans up until August 31 in a scenario that began worsening from April last. This moratorium was virtually of no use since interest was imposed and there was interest on interest. Many wise folks actually did not avail any benefit of the moratorium and instead kept paying installments to avoid compound interest. For this, most had to resort to drastic and unconventional saving methods.
Now, an extension of moratorium has been announced by the lead bank, the State Bank of India, for a maximum of two years for home and retail loan borrowers, those under personal loans category, and those who took loans for education and vehicle purchase. The promise is to re-structure the EMIs or other periodic payments. There, however, are conditions; like, only those who are affected by the lockdown will get the relief; that the account has to be a standard one, and that it should not have been in default for more than 30 days as on March 1, 2020. Those who have taken a loan after March 1 will not be eligible for a restructuring. This is meaningless since lockdown was announced by PM Modi on 24 March and people had no clue of the impending catastrophe.
Problem also is, it looks like a piecemeal approach which has been adopted in the matter of giving relief. Many segments of the borrowers have been left out. There are larger numbers of borrowers from many unlisted segments and their plight is not taken note of or addressed. This is a problem with both the Centre and all state governments. They look at matters from selective sides and ignore the larger picture. When a problem of this mammoth size stares point blank at the nation and its people, a knee-jerk response will not be of help. What is required is an overall, universal approach to addressing human distress. This is sadly lacking.
A question is, what of the entrepreneurs of the small, medium segments. One individual would be employing scores or hundreds of people. If he collapses, the families of the entire workforce will collapse too. Society takes a big hit. But, little attention is being paid to the employers, who keep life ticking at the ground level with payment of salaries even in these odd times when funds are scarce to run units. Job creators need be given the attention they deserve. This is not to say that the housing and retail loan-takers should not get the relief. Help them by all means. These are difficult times for all. But others too deserve a hearing and support from the government and banks at this hour of crisis.
Admittedly, there also are the black sheep, those wanting to take advantage of the relief offers from banks even if they do not really face any odds even in these times. Their numbers would be minimal since everyone has been hit in these times of economic disaster. None is spared. In fact, the banking sector as also RBI was against a further extension when the proposal came before 31 August. RBI said it was concerned about changes in credit behavior among borrowers and that it would increase the risk of loan defaults if such extensions were granted.
SBI and other bankers said even those borrowers who had the ability to repay were taking advantage of the relaxation or moratorium. This does not ring true. A bank like SBI has huge defaults historically since the people working in it were either dishonest or incapable to assess credit worthiness of hundreds of thousands of borrowers countrywide. Now, when the same bank with the same staff makes such a radical claim, it sounds hollow.
Some among the business class have a way of holding back payments where there is even a minute scope. They tend more to play with the money in hand. That is precisely the reason for much of the NPAs, or bad loans, that Indian banks are today saddled with. But, they are small in number, while considering the scene in its totality. Most businesses are struggling hard today, a scenario that was building up since Demonetization and much before the Covid struck the nation. Ease of doing business in India is diminishing because the entrepreneur is looked at with suspicion. Real ease will take over when job creators are consulted and taken care of. Job seekers and holders will benefit only when the job creator is safe and encouraged.