Individual citizen, MSME in crisis, default Rs 68 trillion loans

There is more to covid19 morbidity as it leads to dreadful rise of whopping Rs 66 lakh crore in personal loan defaults in addition to accumulated MSME debts of Rs 2.26 lakh crore.

The individuals are now facing auctions by banks and financial institutions. The MSMEs having crunch of lending have their units in temporary or permanent closure and seeking more loans to survive.

This is happening amid eight core infrastructure sectors’ production – coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, and electricity - rising 8.9 percent in June 2021 at a low base of minus 12.9 growths in 2020. The low growth is likely this year as well due to severe purchasing power erosion of the people, who are inflicted by job, income losses, high prices and critical debts.

The nation is going through a difficult phase as is indicated by the personal debts of Rs 27.86 lakh crore debts, which they are finding difficult to repay. Another Rs 14.64 lakh crore is also on individual housing loans, Rs 2.38 lakh crore due to vehicle loans, credit cards Rs 1.02 lakh crore, against FD Rs 65,891 crore. These individuals or families are also unable to repay education loans of Rs 62,720 crore and jewellery Rs 62,221 crore. 

TThe individuals are suffering from another problem of high taxation. Most of them, except a small segment, are income-tax payers at different slabs. As their deposits are being eroded by tax deduction at source (TDS) on meagre interest earnings, the national crisis deepens. Many of them compromise on their food intake.

It is affecting the banking, FI and non-banking (NBFC) sectors too. This calls for drastic income-tax reduction though it is not to the liking of a tightfisted finance ministry. However, if it is done it may help many other sectors coming out of a difficult situation and helps bank cut non-performing assets (NPA). The Fitch Ratings indicate the NBFC facing near-term pressure. It says, “Non-performing loans (bad loans) are likely to rise as renewed activity restrictions have impaired borrower repayment capacity. Collection shortfalls are better than a year ago, but remain significant at 5 to 40 percent across segments in April and May”.

 The woes of the individuals, small businesses and tiny ones surviving on small incomes may multiply as the banks and financial institutions are to start a tough recovery drive further shaming people and discomforting them. The lending institutions may start auctioning their pawned gold, vehicles and other assets as the festival season begins. This might mar festivity and may even create societal and political problems as a large sector comprising about 55 to 60 percent of the people are impoverished.

 The FIs had put off selling or auctioning the collaterals during the pandemic but now they are finding their own survival difficult and some like HDFC and Axis have indulged in unethical means to shore up their cash books. Both these banks have been penalized with imposition of token financial penalty or Rs 10 crore and Rs 5 crore respectively. The ICICI is mulling auctions of pawned jewellery, vehicles and HDFC’s housing wing HDB Financial Services houses. 

According to RBI, loans against jewellery stood at Rs 62,221 crore on June 18, 2021 and grew 80 percent. It indicates that the households are in dire straits and finding it difficult to survive. The National Crime Bureau figures of rising suicides of individuals and some with their families may have link to the deteriorating financial conditions. The fall in FMCG goods sells or vehicles sales are supposedly connected. The political thinkers have yet to mull over this grave situation. If they do it might become a volatile issue.

A large section of these people are also having association with the gasping MSME sector. MSME minister Nitin Gadkari told the Rajya Sabha in February “data regarding temporary or permanent closure of the units are not maintained by the government”. 

He said that a Khadi and Village Industries Commission (KVIC) study on pandemic impact on micro units under the PM Employment Guarantee Programme (PMEGP) stated that 88 percent of the beneficiaries were “negatively affected”, while 12 were benefitted due to covid19”. Over 99 percent PMEGP units - 6.30 crore of 6.33 crore are micro enterprises, according to ministry’s 2020 annual report. 

The larger units under MSME though now have disbursal sanctions of Rs 2.76 lakh crore under the Emergency Credit Line Guarantee Scheme (ECLGS), the MSME groups say that the conditions are difficult to get a loan. The parliamentary standing committee notes that there is huge gap between sanctions and disbursement as banks fear defaults for covid19 recurrence. 

Amid these moving the bill to amend the insurance is fraught with dangers. The private insurance sector is in shambles and they all want demolition of the LIC, an ethical, pro-investor organisation. The sale of banks and LIC to the private sector should not be welcome as it further adds to the deterioration of the economy and large job losses. 

 The entertainment, cinema included, and education sectors are also in deep crisis. The cinema industry is having severe financial crunch. Many artistes and technicians have been thrown out of jobs. The private education sector is one of the worst sufferers of covid19 with their admissions taking a heavy hit and many parents unable to pay the fees. The National Education Policy formulations are further eroding their finances and delivery mechanism. 

The poor individual finances and no cash flow are hitting the economy hard. Many cosmetic programmes, incentivisations, loans and even direct benefit transfers (DBT) surprisingly are not boosting the economy. 

The economic contours have to change, freed from Manmohanomics and a new economy needs to be conceived with discussions with all stakeholders and political parties. Post-demonetisation downfall has to be stemmed for the country to be an effective power. It has to begin with empowering the individual in real financial terms, including cut in taxes.