Q: I want to understand the feedback that you are getting from your clients on how they see this being different from The Global Financial Crisis of 2009? Of course the obvious one is the medical emergency and the medical crisis and the uncertainty linked to that that we are going to have to deal with, but effectively qualitatively what are CEOs most concerned about today?
Sibio: This is very different, obviously the situation is different all around the world and so we have regions and countries where the virus is really still on the upswing and India being one of them and then we have places where it is certainly on the downswing and recovery has started like China. So we are getting different inputs from different clients depending on where they are based in the world. But right now, I would say if you look at the US and Europe where our clients are looking to really recover and so forth things have started to open up, people are starting to get back into offices even though it is slow. Obviously, the biggest concern is around health and health of their employees and making sure that there aren’t subsequent outbreaks.
Now I think everyone would agree that there is going to be outbreaks when you start opening things up and so therefore there will be setbacks which is why we do think that there will be a recovery, it will be much longer than what we thought of originally, so this concept of v-shaped, u-shaped it is really more going to be like a check mark. We went down and now we are going up, but we are going to have setbacks along the way that is why we are saying it is like a sawtooth. But that will continue, right now there are concerns around making sure that we are getting people back, back in offices safely that is the biggest concern CEOs have. But then also it is where the economy is going and there has been a lot of stimulus in many parts of the world, not everywhere. The stimulus has helped medium-sized businesses and frankly even in the US as much as that has helped it is at a point now where the country has to open up because otherwise there will be more permanent damage to the economies versus temporary damage.
This is very different than the financial crisis which obviously was born out of financial institutions and so forth. For the most part here financial institutions are surviving this pretty well there is a broad-based setback, but it is also a setback that should be temporary and when I say temporary, it could mean six months from now, it could mean even longer. But we will get through this and how we are going to get through this is going to be dependent on medical science and finding a vaccine. As we get through that there are a lot of concerns around how is this going to change everything going forward, everything from working from home to supply chains to globalization those are all things that are going to change going forward.
Q: The vulnerability of India’s financial sector and the impact of that on the recovery as we move forward?
Daruwala: I think with the RBI measures of giving six-month moratorium on principal payment I think that is a very good move which has happened because clearly clients will take time before the cash flow start being able to service the interest and principal. So I think this measure has been good, having said that I think we will have to take stock maybe end of August to see whether the recovery is enough for clients to service the interest and principal. Maybe in some sectors which are very deeply affected, I feel like airlines and hotels and realty I think the onetime restructuring window if that is given will really help solve the situation. I think if these measures are done to my mind it will keep the banks in a much more solid financial condition than what was there in the global financial crisis period.
Q: So onetime restructuring is the need of the hour the question is when will the Reserve Bank bring that in- I was asking you about the vulnerability of India’s financial sector and link that to the economic recovery. Now you have got from Moody’s to other agencies saying that this is going to be a period of high stress for the financial services sector which means that there might be a need for higher recapitalization as well. What will it mean for the economic recovery if this sector itself finds itself struggling and in pain?
Kumar: There is no doubt about it that if the real economy is in trouble then some of it is going to be reflected on the performance of the financial sector, I have no doubt about it. The only thing is that the financial system or the banking system particularly is in a much better position than what it was three years ago, but yes the banks would need capital for both. They would need to support the growth and they would need to build up higher risk capital, so definitely there would be demand for more capital and that is what you would have seen that most of the banks which have declared results they are trying to build up the risk capital by keeping higher provisions and I believe that is the right strategy.
We may not have a problem till say June quarter because of the moratorium given by the Reserve Bank of India, but going forward the impact on the financial sector would depend upon of course upon each banks quality of the portfolio and their exposure and what is the concentration risk which they are carrying in the balance sheet. The banks which are more diversified across the geography and across the sectors and have already built up a good provision coverage ratio for all the accounts; they would be in a much better position to weather the storm. But the position will start becoming clear for all the banks and in general for the economy in the coming months, what we are seeing is the partial exit and partial exit it has its own problems and unless there is a full exit and everything is normal it is very difficult for the all the sectors of the economy to work at the full capacity. But I don’t think there is any other alternative also other than the gradual opening up, there is no way that the opening up can happen in one go. We are still seeing that the number of cases, they are on the increase and they are on the rise.
Q: One number from you, is there an estimation that you are working with in terms of what the recapitalization amount could be?
Kumar: We are doing the numbers, it is premature to say now. We are working on scenarios, scenario one, scenario two, scenario three and scenario four, so we are working on all the scenarios.
Q: You haven’t arrived at the number but what is the need today? I would imagine we are in lockdown four at this point in time, restrictions continue across the country and especially in sectors or the states that are the industrial hubs, so at this point in time what you believe the need is likely to be?
Kumar: Immediately there is no need because the reason is that risk weighted assets have come down for the State Bank of India and I am sure that would be the position for everyone. What happens typically in the first quarter there is always a negative growth in the risk weighted assets and it will be for some time that the risk weighted assets growth happens. So ultimately as I said that any capital planning would need to take into account both what would be the risk weighted assets growth and what would be the requirement for keeping higher risk capital or the provisions.
Q: To the point that was being made there by a Mr. Kumar that we have to at this point in time live with this partial reopening, but it poses its own sets of challenges and I know that companies like yours are dealing with them pretty much on a daily basis both at the front end as well as the back end. But you know Sanjiv a lot of, sort of extrapolations are being made on what this means in terms of consumer spending, what it means in terms of consumer behaviour, discretionary spends what is your best estimate at this point in time on what is likely to be the big structural shift if any?
Mehta: First I think there is no option but to start opening up the economy, second it would be a folly to bring a number to what is going to be the impact on the consumption because there are so many variables at play. You have the supply choking up in the initial days of the lockdown, now the entire focus is to ramp up production and today you are at a scenario because the pipeline has been shrunk that whatever you make you are able to sell. Only when you are able to fill up the pipeline’s then one would get an understanding to what extent the demand has been postponed, to what extent the demand has been impaired. So it is too early today, but clearly there are some trends which are very obvious and this would be from behaviour perspective.
First very clear is about fear, fear in the minds of consumers about the health, about getting infected, about losing a job, and about erosion of wealth and this manifest as far as our categories are concerned in different ways. If you look at today hygiene, the need for hygiene has gone up several notches. We used to put huge emphasis on educating the consumers to washing hands with soap, we don’t need to do that today because people understand that you need to do that. Not only that keeping your large surfaces clean, kitchen slabs, door knobs clean so there is very clearly a huge focus on hygiene.
The second is health and wellness you want to be physically well, you want to be mentally well, you want to have immunity so that you can prevent the virus from reaching to you or in case it does you can recover fast. So those are very clear obvious things which are happening. Now also because the supply chains are being impacted there are many discretionary categories where you at this stage you feel that the demand is not there or the demand has slowed down? But you know remember something in every recession there is a lipstick effect. People want to indulge in small toys and there is no one I believe who doesn’t want to feel good and look good. So I believe even discretionary categories they will bounce back when the availability opens up. But certainly when you see your capital eroding, your wealth eroding then you become much more conscious about spending. So we are clearly seeing a trend towards more sale of price point packs, too early to say whether there will be real big-time down trading, but certainly people will be much more conscious about spending and also the frequency of trips have gone up because people want to have lower outlays for trip and what is clearly a trend which is emerging.
The other is the channels – again you know I believe this is the Renaissance of the humble grocer. People have understood what the proximity means and what a great benefit the grocer brings to you and I think if we can connect the stores digitally then we could perhaps you know really not only protect 100 million lives which depend on the grocery trade, but this could mean a new era for the grocer’s. So there are many things which are opening up, the trends are shaping up.