The pandemic CORONA Disease which has created mayhem is a situation which every person living in this planet has witnessed for the first time. This has directly or indirectly affected every country and every class of people. As on 29.04.2020, 32.21 Lakhs people have been infected and the death toll has reached 2.29 Lakhs.

United States, Spain, Italy United Kingdom, Germany, France, Turkey, Russia and Iran are most affected by this virus. India is still in a better position with 33 Thousand affected and 1074 deaths. But the pandemic is still growing with 1813 new cases as on 29.04.2020.

Such massive situation is bound to impact the Indian Economy very badly and it may delay the Government’s aim of reaching $5 Trillion by 2024-25. It will affect all the sectors of economy but the impact will be felt mostly on the following sectors:

1. Aviation Sector
2. Hotels
3. Tourism
4. Real Estate
5. Entertainment
6. Textiles
7. Steel
8. Power/Energy
9. Banks
10. NBFCs
11. Automobile
12. MSMEs

Keeping in mind the Government’s agenda of achieving $5 trillion economy by 2024-25, government has emphasized the actions of Banks in supporting important sectors of economy.

If we try to analyse the impact of COVID-19 on Banking Sector, which is the ultimate support for any financial/economic activity, we will see the following points:

• Decrease/Lack of Growth in Deposit Base:

Since the start of Lockdown imposed by the Central Government, most economic activities have been stopped. Depositors have started to panic and they are withdrawing their fund from bank accounts for any emergency. With persons working in unorganized sectors having NIL or minimum income their savings are zeroed out. Even after the situation returns to normal, it will take a much longer time for people to have extra fund available for savings. Some large corporates are also forced to go for pay cuts and organizations are planning to cut expenses. So the chances of banks increasing their deposit base are very low.

Further worsening the situation is the trend showing reduction in Low Cost Deposit or CASA (Savings Deposits and Demand Deposits) which is directly related to Bank’s profitability and Lending Rates.

• Decrease in Retail Lending:

With expected lower income of middle class, spending and investing habit will undergo huge                                               change. The near future will see drop in purchase of residential property which will hamper the secured retail loan growth.

The automobile industry is already in stress and has undergone dip in units sold YoY. With the CORONA situations prevailing, chances of any increase in sales of personal vehicles in the upcoming festive season are pretty less. This will further impact retail lending of banking sector.

Stress in Asset Quality:

RBI and Ministry of Finance has provided certain relaxation for Loan holders due to financial stress faced by them due to CORONA Outbreak and lockdown imposed.

However the worrying situation prevails as:

1. With income drying up for small businesses and persons with less income, chances of them being able to continue repaying EMIs/Interests are doubtful.
2. The aviation industry being Capital Intensive Sector, is having large borrowings from banks. With passenger air traffic being stopped for a longer period, aviation companies will be out of fund to repay the bank borrowings.
3. Hotel Industries are also going to bear the brunt. With bare minimum transportation (even after lockdown is withdrawn) chances of tourism industry bouncing back is very less. Further, corporates are adopting Video Conferencing and Tele-Meetings which will further drop the occupancy rate of hotels. With no substantial income coming, hotel / tourism sectors are likely to default and put stress in the asset quality of banks.
4. With less demands from industries, steel sectors will not be able to generate cash/fund inflows required for repaying bank borrowings.
5. Power/Energy sector is experiencing less demand and not able to generate revenues. This will also worsen their capacity to service bank repayments.
6. Bank’s having exposure to NBFCs will face the heat although RBI has granted three month’s moratorium to them.
7. With MSMEs facing the toughest periods, loans/credits granted to MSMEs are bound to have defaults.

Reduction in Operating Profits:

With decreased Low Cost Deposits, Cost of Lending will be higher. However, banks will not be in a position to increase the Interest Rates for Loans. This will impact the operating profit of Banks. With waiver of minimum balance charges , waiver of charges on digital transactions, increased cost of operation due to this pandemic, hampering of normal business, banks will experience reduction in operating profit.

• Mounting of Provisions on Bad Loans:

With asset qualities decreasing, banks will have to add provisions for bad and doubtful loans. This will impact the Net Profit. Further, standard retail loans and secured loans attract less provision. Since, banks are advised to provide more finance to MSME sectors and Unsecured Loans, provisions will be on the higher side directly decreasing the Net Profits.

• Delay in recovery proceedings:

Due to lockdown, DRT, Courts and DM Offices where large number of applications from banks regarding default in payment are pending are not functioning. This is delaying the recovery and collection efficiency.

• Recruitment/ Increase of Branches by Banks:

As on 31.03.2018 there were 27 PSBs in India. After merger, the number is now 12 as on 01.04.2020. Now where the merged/consolidated banks are having more than one branches are being closed. This is leading to decrease in bank branches and pause in mass recruitment by PSBS. Further, with less economic activities and lower business growth, any substantial recruitment by banks in India is not on the cards.

Except these, with new work cultures being adopted by industries and largely by societies, the actual impact on banks can be assessed only after normalcy returns and at lease 3-4 quarters of normal business.

Result of Axis Bank (Declared on 28.04.2020):

Most of the Indian Banks have not published their results for Q4 2020.

On 28.04.2020, Axis Bank has declared their results for Q4 2020. The same can be summarized by:

• Net Loss stood at 1387.78 Crore against Net Profit of 1505.06 Crore in the same period Last Year.
• Provisions and Contingencies increased by 185% YoY and stood at 7730.02 during the quarter ( Of this 3,000 Crore is related to COVID-19 ).
• Slippage of 3,920 Crore has been recognized for the Quarter against 3,012 Crore last year.

With Government and RBI taking various steps for uplifting of Indian Economy post Covid-19 situations and nearly 10 lacs bankers working for the larger cause of society and uplifting of Indian Economy,  we can hope that the bad impact of CORONA Virus in the Banking sector and overall Economy will be minimized. This will require dedication, discipline, honesty, right attitude from all the sectors of society. On the changed global scenario, this is also an opportunity to improve the Indian Economy and transform India into a Financial Super Power .