Disbursing loans cautiously as fresh credit from banks is really tight: Nirmal Jain

Avenues of credit from mutual funds and insurance companies have dried up completely, says the IIFL Chairman.

The markets are not enthused but what is it that you have made of the first tranche of the economic relief package which the finance minister announced yesterday?
The package is strong and the intentions are right but the only thing we need to see is how it is executed and whether the intended benefits and the money reaches the intended segments of businesses and economy or not. If you really see, in the case of NBFCs, whatever has happened in the last one and a half years, some of the schemes have been fully effective, some of them have been partially effective and some of them have been totally ineffective.


NBFC now have Rs 3 lakh crore liquidity but they are saying that secondary bonds will be allowed to be bought in this. When you have secondary bonds, the money goes to the mutual funds and it does not go to the NBFCs; so it does not help. In case of TLTRO also, what happened was banks borrowed money at a very cheap rate from the RBI and they lent it to AAA grade NBFCs or AAA grade corporates and they actually can borrow from the market also. So they took the money and replaced their high cost debt with the low cost money from banks. The entire subsidised money actually did not get into the hands of NBFCs or people that really need to use it. Now you have Rs 3 lakh crore credit for MSMEs but we have to see who is going to deliver that credit because banks do not have the reach and the last man connectivity to disburse Rs 3 lakh crore of new MSME loans and NBFCs do not have the money at least at this point in time.

So unless the package is holistic and also provides liquidity along with the credit guarantee, the intended benefit may not reach the segments of the society that they are intended for. In the case of NBFCs, even the real estate funds which the government had launched, which was Rs 30,000 crore to bail out real estate projects; I do not think anything has happened to the real estate sector because the interest rate and the yield expectation is higher. Secondly, they say that the money should come to the fund part. Would that mean that any project that has been transferred to them will become NPA here because suppose if a project which is funded by IIFL, we transfer the money there and the first cash flows go to them, they would not be able to service our interest.

The way the schemes are ultimately drafted and executed, we really need to pay attention to that and the government needs to do that. So the intentions are very good, the package is very strong and Rs 3 lakh crore can make a difference but one has to look holistically whether this will really get executed and money will reach at the ground level to the MSMEs and in what timeframe and at what cost.

The markets are aligning themselves to the reality of what is happening across the world. Jerome Powell last night said that further stimulus from the Fed will be required. There are fresh new cases coming in even in regions like South Korea and Hong Kong wherein it almost seemed that the virus had been eradicated or for that matter even in mainland China. Markets seem to be aligning towards these parameters and these cues right now. Would you say that maybe the package has come in a little too late for the markets to rejoice?
It is very difficult to say because we do not know how this crisis will ultimately pan out and how long it will last. I think it is not too late even now but in the whole world there is a lot of uncertainty. It can be a V-shaped recovery in case there is a cure or a vaccine or it can be prolonged L-shaped recovery which can be a complete disaster for a much longer term because if most of the countries and banks are putting in a lot of money and they still cannot really recover, the situation is very fluid.

It is very difficult to say but I am an optimist and I think it will be a V-shaped recovery or a U-shaped recovery. So the markets will take one or two quarters in stride but they will look at the future ahead and find that equity as an asset class is still attractive not only to the individuals or retail investors but even to institutional investors the world over because otherwise the yield on the debt paper will be very low. And actually the whole world is awash with liquidity and money will find its way in markets because people will take risk once they have some visibility.

What is happening at the IIFL NBFC book? Are you looking at contracting it or are you looking at reducing it purely because of liquidity and purely because of risk?
In this TLTRO, the primary money that we got is only Rs 100 crore and actually we have repaid Rs 2,400 crore of loans in the last one month. We have been in touch with most of the large banks. So at this point in time, we have to play safe. We have to make sure that we have liquidity for the next six months to meet all our contractual obligations. So we are going slow on new credit disbursements till we see that the line of new money or the liquidity from banks under whatever schemes the government is announcing is clear.

We are an AA-rated NBFC and our outlook has been reaffirmed by CRISIL but still as I said, liquidity or the new credit from banks has been really tight and all other avenues of credit like mutual funds, insurance companies have dried up completely. So we are conserving liquidity. We are just waiting for things to recover. It is not that we have stopped credit disbursement completely but we have slowed it down significantly and we are being cautious.

What has been the impact of lockdown on your wealth management business and the brokerage business?
The brokerage business has been doing pretty okay because online broking is doing well. In fact, that has picked up; the number of new customer acquisition has picked up and it is very difficult to figure out the reason. Is it because people are consuming less, so they are saving or they are at home and they are trading more or there are new millennials coming to the market thinking the market is attractive. So that is about the brokerage business.

The wealth business, most of us are cautious and there is not much churn and they are really allocating more to equity. They have allocated a little bit more but still they are very cautious. The advisory business is picking up well. That is the path that we started moving along. I think that is picking up slowly but surely. There are challenges because these are cautious times. It is very difficult as customers do not allocate as such to risky assets or they do not churn much; then obviously our revenue is impacted but right now we are doing well.