Non Banking Finance Companies (NBFCs), especially smaller ones with weak balance sheets, would do well to engage more and become upfront with banks to better navigate the COVID-19 crisis, Pankaj Mallik, Chief Finance Officer, Fullerton India has suggested.
Speaking at a Dun & Bradstreet organised webinar on “COVID-19: Risk Management Challenges for Finance Leaders in H2 2020“, Mallik said NBFCs and companies should focus more on “liquidity” than on “growth” in these times as lack of liquidity could pose challenges around “going concern” for them. “Liquidity should be most important now for companies. We can talk about growth when we survive this crisis. We should prepare response plan for each shape of recovery (whether V or U or W). This will not only help companies mitigate risk in future, but also identify new revenue streams,” he said.
He said COVID-19 has brought all companies and institutions back to the drawing board. “Things that had helped companies succeed and thrive in the pre COVID-19 era may not work now. They need to identify new levers for success in the future. Companies that use thought leadership to find out newer opportunities are surely going to come out stronger in the competitive post-COVID19 world,” he said.
Other strategies
Companies should go beyond mere crisis management and identify hidden opportunities of new sources of revenue (like ParleG hand sanitisers), he said. In this kind of environment, revenue is not going to be there for sure. It could be muted. Credit costs is likely to go higher. So two out of three variables is not in control of an organisation like a NBFC. Companies have to identify the bad costs to tackle and not have a-one-size-fits-all approach where costs such as digital costs too are down-scaled. We cannot cut a cost like digital cost that is critical for the future,” he said.
In the new normal, company managements should have a more humane approach and not a “command and control” approach, Mallik added. He suggested that companies should spend a good amount of time on how the future is going to be looking like even as it takes steps to tackle the current Covid-19 crisis.
NBFC sector situation
He highlighted that the situation for the NBFC sector would have been much worse if the Covid-19 pandemic had struck during September 2018 when the sector was reeling under the IL&FS blowout. “Now the banks are wary of supporting smaller NBFCs with weak balance sheets. Companies should upfront share with banks their long term business model and try to avail the money in the two government announced schemes of liquidity window and partial credit guarantee,” he said.
Krishnan Venkatachary, CFO, Cigniti Technologies Ltd, said consolidation is going to be the norm in most industries in the post COVID-19 world. “One has to be extremely careful in choosing right companies for acquisition. The caveat is that most companies with attractive valuation can also come with a baggage. We should not end up draining money in doing mergers and acquisitions,” he said.
Arun Singh, Chief Economist, Dun & Bradstreet, said Dun & Bradstreet expects recovery to be anywhere between V and U shape. Thanks to COVID-19 pandemic, as much as $9 trillion of global GDP has been written off for this year and the next year, he said, adding this was more than three times India’s GDP.