The lockdown clearly has further impacted the already strained housing finance sector. What is your reading of how things are going to pan out on the ground? How badly do you think the sector is going to be impacted because right now the fight is about bare necessities; buying a house comes very much later?
Certainly, the operational robustness of organisations is going to play a very major role; who survives and how well everybody survives. I am very sure that everyone will survive. Another thing that comes to my mind is the replacement cost post the COVID-19 impact because the real estate sector is not like an electric bulb, which you can just switch on after the lockdown is done with. It will take a long time to get the projects started because the labour has moved to their villages or to their hometowns.
For customers, as you very rightly said, it will take a while to make that decision to buy their homes and even for people who were in the midst of making that decision of buying their homes or had booked their homes. The cash flows are going to be impacted for far too long a period than just three weeks or three months. So it would take a good six to nine months to come back to the old level.
I also wanted to talk to you about the three month moratorium which has been slapped by the RBI. Do you think it is enough to provide relief to the borrowers or do you still suspect that there are going to be NPAs, which will build into the system?
We have been deliberating a lot in our senior management team before we go to the boards for our policy approval on the moratorium. These three months are going to be dynamic; we cannot really forecast what will be the impact on cash flows and NPAs as of now but the good thing that the Reserve Bank of India has said is all loans on your book on 1 March, irrespective of the status of the loan; so on one side you have to protect some bit of your cash flows because we also have commitments towards our salaries, our vendors and our repayments because NCDs are not covered under term loan.
So maybe our bank borrowings get a moratorium for us but NCDs, CPs, deposits will mature on time as they were due to. So to protect the cash flow of the institutions, it is very important that we maintain the credit culture of the good customers. As and when the COVID-19 endemic puts them into stress, we give them moratorium for the remaining period. That is my thought process rather than giving carte blanche to the entire portfolio residing on your balance sheet as on 1 March.
So certainly the real estate developers, the SMEs are going to come and opt for it first. But as the government has been protecting the salaried class by giving advice on making payment of salaries across the sector, the salaried segment is going to utilise it only when they require it and not just take it as a repayment holiday.
There is a three-month moratorium. Do you think that is not going to take care of the problems for builder loans?
Not only for loans, construction activity, which is the second largest employment generator will require a far longer relief. They cannot pick back overnight or in 91 days and they will really have to garner a lot of effort, labour and equipment. I am just giving you an example.
For example, the concrete mixers got stopped. Now to restart a concrete mixer, first a developer or an engineer on site will have to take a survey of whether the concrete has actually strengthened a bit and if it has then there would be a huge sort of redeployment costs that will be incurred. The impact of this shutdown or COVID-19 can only be assessed once it is over. It cannot be assessed completely during the shutdown period or during the COVID-19 endemic because every day situation will dictate that.
What about new businesses? When do you think the business will start normalising? Are you able to approve loans? How is that entire loan approval process moving?
We are leveraging on our technology investment in a huge manner. We are all working from home and we are working at about 80% efficiency. If you talk about capacity utilisation, we might be working at 40-45%. So yes, approvals are happening and part disbursements are happening. The first priority is obviously the safety of our employees and their morale because that is what will take us ahead. Obviously, then comes the customer service; so customers on board have to be serviced real time on an online basis, which is happening.
Then obviously is the new business. So the new acquisition is not happening because our top priority is to manage well being and health of our employees; so we have said there is no need to reach out to new customers and customers are also not willing to meet sales people at this point of time and they are not making purchase decisions.
Managing liquidity, managing the task force, managing incremental borrowings and obviously the output are equally important for a CEO of a lending institution. So robust companies like ours who have the data and are accessing real time information, are not on the mainframe system or not on the servers but it is on a private cloud. So organisations which have invested hugely in technology are going to overcome this period of shutdown.