SECOND wave of Covid thwarted recovery process underway across sectors, with lockdowns in states and spread of disease having huge impact on MSMEs and service sectors, new data on loan slippages shows with banks and micro-lenders.
From hotels, tourism, transport and aviation to commerce and small manufacturing units, specific pockets of the economy are starting to report a disproportionate impact of distress, both in the form of declining costs. income and an increase in loan defaults.
The impact of this development could be twofold: any improvement in the overall trajectory of consumption depends heavily on a recovery in service sectors such as trade, hotels, transport, communication and related services. broadcasting, which support more than 20 million households; and companies in the listed space, which have recorded better growth figures, may end up feeling distress in the unorganized segment.
MSMEs and micro-enterprises were the hardest hit with almost 60 percent of additions to non-performing assets (NPAs) in April and May coming from MSMEs, almost double what they were previously. The pandemic hit businesses as early as the second week of April itself, a senior Bank of India official said.
“Slippage comes mainly from MSMEs. About 60 percent of the NPA (April and May) comes from the MSME sector. It was between 30 and 40% earlier. The elements of the defaults are labor constraints, transport problems due to foreclosure, unavailability of raw materials and uncertain cash flow, ”the banker said.
Microfinance companies, lending unsecured funds to microentrepreneurs, have seen a drop in fundraising efficiency due to prolonged Covid restrictions. “Loans over 30 days past due or portfolio at risk (PAR) could reach 14-16% of the portfolio this month, up from a recent low of 6-7% in March,” the rating firm said. Crisil.
“Our customers, who are mainly small traders and businessmen engaged in daily use products, were unable to open their store and their livelihoods were affected as a result,” said PN Vasudevan, Managing Director and CEO of Equitas Small Finance Bank.
The Retailers Association of India said retail sales in May 2021 were -79% of the pre-Covid sales level compared to May 2019. “Retailers expect some improvement in the month of June with gradual release. However, the retail sector needs the collective support of various government bodies, ”said Kumar Rajagopalan, CEO of Retailers Association of India.
Indian Hotels, which reported a loss of Rs 524 crore in FY2021, said its business was badly affected in FY21 due to Covid. “During the second half of the year, the company saw signs of recovery in demand, especially in leisure destinations. Although there has been a second wave of the pandemic in recent months in some states, there has also been an increase in the vaccination campaign by the government and the company continues to monitor the situation closely, ”he said. he declared.
Consumer confidence during the current period, which has been in negative territory since July 2019, fell to an all-time high in May 2021. The current situation index fell to 48.5 in May 2021 from 53.1 in March, according to the Reserve Bank of India confidence survey.
Air traffic is expected to collapse in fiscal 2022 and not fully recover until the fourth quarter of next fiscal year due to the debilitating consequences of the second wave of Covid in India, Crisil said. Passenger traffic at airports has taken a nosedive, with average daily domestic passenger traffic halving in May 2021 from February 2021, or to just 10% of pre-pandemic levels seen in May 2019.
In the automotive sector, in May, factory shipments of passenger vehicles and two-wheelers contracted to one-third from the previous month, while three-wheelers achieved negligible sales in the month of May. ‘approximately 1,200 units. The cumulative sales of five players in the commercial vehicle industry were almost half of the levels of the previous month.
According to Soumya Kanti Ghosh, group chief economic adviser, State Bank of India, the overall consumption trajectory will depend on the resumption of services such as “commerce, hotels, transport, communication and broadcasting-related services”, which support about 25 million households. Companies, in the listed space, reported better growth figures across all metrics in the fourth quarter of FY21, but that trend could reverse soon, he said.