The second wave has taken the whole country by the hurricane. People are very worried that the economy will shrink further and banks will see a significant demand reduction. But Chief Economist of Bank of Baroda, Sameer Narang, has an appropriate narrative of the prevailing situation. He believes that H2 (second half of the year) will be better than H1, and as we are speeding up the vaccination process, it will help to recover faster.
How Terrible Will The Second Wave Be For Banks?
He stated: Any bank has four market segments. The first is the corporate sector. Even after the last wave, it still has high resilience, and the recovery momentum is very strong. Most importantly, the corporate sector has not undergone extensive reorganization. This means that firms may be able to tolerate this wave because the restrictions in this wave are far from the limits in the first wave. Therefore, I think they should hold up all their rights.
The second is that the agricultural sector will not be affected and will not make a difference. The third is small and medium enterprises. There will be some impact. Last time, because of the scheme provided by the government and the Reserve Bank of India, we were able to see through the day. Due to local restrictions, some MSMEs will need this kind of support. Therefore, the Reserve Bank of India and the government will need to combine the schemes.
The fourth is retail loans. Here, the salaried class is still good, but I think the informal sector will be affected. Within this scope, we must figure out. Banks may not be greatly affected because they do not cater to the informal sector to a large extent like NBFC. This will have an impact on NBFCs, and they will require a certain degree of support. It also depends on the pace of the second wave. We should wait and see how things pan out. If this phenomenon occurs within 6 to 8 weeks, most market segments will be resolved. If it lasts longer, then this may be a problem for market segments. It is very difficult to create a strategy in an uncertain environment.
Both the Reserve Bank of India and the Central Intelligence Agency were aggressive in the first wave. Can we expect the same performance in the second wave?
I think we should wait and see, something will happen. Last time it was a nationwide lockdown, this time it is localized. Public policy must be local in nature and cannot be extended for everyone. We should take a look at how the policy is formed. I think something will come soon.
Does The Government Have Any Scope? Have We Almost Reached A 10% Fiscal Deficit?
No, I don’t think you need a lot of funds, maybe you require them for the informal sector and MSMEs. For this, you need some short-term strategy and processing methods. Once vaccination starts, the way the numbers rise may also drop sharply. We should proceed from this point of view and believe that a large amount of liquidity may be injected. It was also the last time, when the number of cases decreased, the economy quickly recovered. Therefore, if the number of cases drops after a few weeks and you are actively vaccinated, H2 will look different from H1. You can observe from other countries that vaccination promotes economic development. I am not saying that coronavirus will disappear, it will stay here, but the impact will be manageable.
What Are The Short-Term Challenges You Can See In Terms Of Demand?
Obviously, demand will fall. The indicators have shown that you are correct, simply because the retail store will be locked. As a result, it is difficult for manufacturers to produce products where they will sell them. This will have an impact on demand and supply, but in reality, we will recover quickly as we saw last year. In addition, when the number of cases decreases and economic activity returns to normal, the situation will soon return to normal. My feeling is that things will return to normal soon.
Will India Face The Impact Of The Global Economy? Will Foreign Investors Slow Down In India? What Is Your View On This?
I sense that global recovery next year will be well contained. Because the geographical demand is strong. And governments are gradually increasing their spending, at least internationally. Other stimulus measures will be taken next year as well as this year. Therefore, this is a complete environment for rapid global recovery. My belief is that India will also benefit from an export perspective. The domestic recovery depends entirely on the coronavirus situation. Once the vaccination situation improves, you will see that India’s recovery will accelerate in the second half of the year and next year. Therefore, I think people should be optimistic about the medium term. In the short term, there may need to address some challenges. It all depends on the vaccination rate. Instead of making 8 crores or how many numbers they made, it increased to twenty crores. It will make a difference in how things pan out. If you have twenty crores in a month, you actually have to vaccinate about 6 million people every day.